Mexico's central bank acts to bolster Latin America's most battered currency

By Jonathan J. Levin, Ben Bain and Nacha Cattan

Mexican policy makers are reverting to a measure they used during the 2008 financial crisis to stem losses in Latin America’s most-battered currency.

Mexico’s currency exchange commission said the central bank will auction $400 million daily of its reserves at a peso exchange rate at least 2 percent weaker than the previous day’s level, providing support for the currency.

The mechanism, which was last used 19 months ago to shore up the exchange rate following the collapse of Lehman Brothers Holdings Inc., is a “preventative” measure designed to provide liquidity to the market during times of volatility, the commission said in a statement.

The bank is “recognizing that there’s too much volatility in the currency and doing something about it,” said Alejandro Urbina, who oversees $800 million of assets at Silva Capital Management in Chicago. “It makes the peso more attractive.”

The peso has lost 16 percent in the past six months, making it the worst performing major Latin American currency. It surged the most in three weeks yesterday after the bank published the statement, climbing 1.5 percent to 13.8230 per U.S. dollar at the close in Mexico City.