Mexico drops dollar auctions, raises rates, cuts spending

MEXICO CITY – The Mexican government said Wednesday that it is dropping daily dollar auctions, raising interest rates and cutting government spending by 0.7 per cent of GDP as it tries to counter falls of the peso and oil revenues.

The Treasury Department said it will cut federal spending by the equivalent of about $7.2 billion, and the Bank of Mexico said it would raise interbank interest rates to 3.75 per cent from 3.25 per cent.

On currency markets, the peso’s interbank rate rose to 18.29 to $1 on Wednesday, after falling as low as 19.40 to $1 earlier this month.

The central bank had been auctioning off as much as $400 million a day to support the peso. The central bank said it could still intervene in currency markets at its discretion.

Government spending cuts include a $5.5 billion reduction at the state-owned oil company, Petroleos Mexicanos, and $1.7 billion in decreases for non-oil programs. The Treasury Department said the cuts would not affect “security or social development” programs.

The savings will come in part from cutting travel costs, telephone and food charges for government personnel, the agency said.

Prices for Mexican oil exports averaged $24.56 a barrel Wednesday. The government depends on oil revenue for about a third of its budget.