MEXICO CITY (Reuters) - Mexico's peso is being buffeted by investor worries about the global economic outlook but the sell off in riskier currencies does not necessarily herald a capital exodus from Latin America's second-largest economy, a senior finance ministry official said on Tuesday.
Deputy Finance Minister Gerardo Rodriguez said he was not worried by a nearly 0.6 percent dip in the peso early on Tuesday to its lowest in almost three months, saying it was reacting to concerns about the U.S. government budget and Greece's debt crisis.
"The (peso) is operating like an automatic stabilizer of the economy, reacting to the changes in the (world) environment," he told reporters on the sidelines of an International Chamber of Commerce forum in Mexico City.
Mexico has gained popularity among investors this year as economic growth in its rival Brazil slowed and a new Mexican government promised reforms. The peso's gain of more than 5.0 percent against the U.S. dollar so far this year is the seventh best performance among the world's 36 most-traded currencies.
But the trend may be turning. The peso is down about 1.0 percent so far this month and bets on further appreciation of the currency on the Chicago derivatives exchange have fallen in recent weeks after hitting a six-month high in early October.
Foreign holdings of Mexican debt fell by 15 billion pesos ($1.13 billion) from October 31 to November 1, the fifth-biggest one-day decline since the start of July, although they still total more than 1.4 trillion pesos ($106.64 billion).
The level of foreign holdings still leaves Mexico vulnerable to a repeat of the capital flight of late 2008 and early 2009 following the collapse of investment bank Lehman Brothers which helped spark the country's worst recession since the 1995 Tequila Crisis.
But Rodriguez said he did not think the risk of a capital exodus was on the rise, although it bore watching.
"If there were an abrupt reversal in (capital) flows, that is one of the risks that we need to keep monitoring," he said.
Speaking at the same event, Guillermo Ortiz, chairman of the board of Mexican bank Banorte (GFNORTEO.MX), said the "risk on, risk off swings" in investor sentiment of the last few months did affect capital flows.
But Ortiz, who led Mexico's central bank from 1998 to 2009, said he did not expect the sort of exodus seen in 2008-09, when foreign holdings of Mexican debt dropped 17 percent in just over one month.
"It is unlikely that would be repeated again even in the event of high uncertainty due to lack of political agreement in the U.S.," he said.
U.S. policymakers are under pressure to avoid a combination of tax rises and spending cuts that could plunge the world's largest economy into recession and which is set to go into effect at the end of the year if Congress does not reach a deal on deficit reduction.
Mexico, which sends roughly 80 percent of its exports to the United States, had been relatively resilient despite the current global slowdown, notching economic growth of 4.3 percent in the first half of the year.
But Rodriguez said growth would probably slow to 3.5 percent in 2013, lower than the 3.5 percent to 4 percent range the finance ministry forecast two months ago.
"The balance of risks to our central scenario has deteriorated ... because of the general slowing in economic activity in emerging markets," he said.
The central bank has said it expects growth of between 3.5 percent and 4.0 percent in 2012, and growth for 2013 of between 3 and 4 percent, as the global slowdown begins to bite. ($1 = 13.2308 Mexican pesos)
($1 = 13.2308 Mexican pesos)
Reporting by Krista Hughes; Writing by Alexandra Alper; Editing by Simon Gardner, Theodore d'Afflisio and; Peter Galloway