April 20, 2017 / 4:58 PM / 3 months ago

Mexico's peso could strengthen further: finance minister

3 Min Read

WASHINGTON (Reuters) - Mexico's peso MXN=D2MXN= is "quite competitive" and could strengthen further despite likely bouts of volatility, Finance Minister Jose Antonio Meade said late on Wednesday.

The peso hit record lows following Donald Trump's victory in the November U.S. presidential election but has recovered in recent weeks to about 18.8 per dollar as recent comments from U.S. officials suggested a softer approach to Mexico.

"At this rate, Mexico is quite competitive," Meade told Reuters on the sidelines of the IMF-World Bank spring meetings in Washington. "Conceptually, there is probably still room for some appreciation."

The current exchange rate is better aligned with the country's economic fundamentals, he added.

The peso slid to a record low in early January, days before Trump took office threatening to slap a tax on Mexican-made goods and to scrap a free trade deal with Mexico if he cannot rework it to benefit U.S. interests.

"What we saw at the beginning of the year was an exchange rate that was not linked to fundamentals," Meade said. "That is what I think has driven most of the correction.

"But going forward, it is likely that we will continue to have and to see some volatility around the exchange rate."

Mexico sends about 80 percent of its exports to the United States, and Trump's threats to ditch the North American Free Trade Agreement that underpins commerce in the region sparked fears of a sharp downturn in the economy.

Lately those concerns have eased somewhat. [nL2N1H20IP]

In March, the peso surged to a nearly four-month high after new U.S. Commerce Secretary Wilbur Ross suggested a new mechanism should be created to stabilize the currency's exchange rate.

Meade said a stable peso was important from a North American perspective, but "at this stage there is nothing specifically we have in mind" about such a mechanism.

Mexico's multibillion-dollar program to hedge state oil company Pemex's PEMX.UL crude sales against price fluctuations for 2018 has not started, Meade said.

He said he expected Mexico to achieve a primary budget surplus, which excludes interest payments, this year.

"We are pretty confident that will meet our fiscal consolidation targets," he said. "We will have a primary surplus for the first time since 2008, and we would likely exceed the target that we had committed to."

Reporting by Alexandra Alper; Editing by Lisa Von Ahn

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