According to Bloomberg News,the International Monetary Fund has approved the largest credit line in its history. Mexico will be able to use a $72 billion credit line for two years. Approved on January 10th,it's the largest to date for both Mexico and the IMF. As a result of the news,which is a vote for confidence for the state of the Mexican economy,the peso rose for the second day in a row.
After the announcement on Monday,the peso rose 0.1 percent to rest at 12.1986 per dollar (up from 12.2141). So far in 2011,the peso has gained over 1 percent versus the dollar. It's been the best performing currency of the 16 that are tracked by Bloomberg.
“This is a cheap way of accumulating reserves and it's good for the peso,” said Ramon Cordova,a currrency trader at Base Internacional Casa de Bolsa SA,quoted in the Bloomberg story,“It's a vote of confidence and it tells you that Mexico has solid fundamentals.”
The new credit line is nearly double the previously existing line. The first credit line was for $48 billion and expires in April 2011. IMF,which is a Washington,D.C. based lender,first approved a credit line in Mexico in 2007.
Mexico has sold $600 million in dollar options each month,which allows the country to purchase dollars to boost their foreign reserves. Recently,Mexico released figures showing that their federal reserves had grown to over $116.9 billion in early January 2011. So far in January,traders have triggered $592 million of the available options – and it's not even halfway through the month.
Mexico's economy is expected to grow at least 3.7 percent this year,and topped out at a growth rate of 5.1 percent in 2010. Key in this economic growth was a rising Industrial production of 5.3 percent in November 2010 and an increase in automobile exports in 6.6 percent in December 2010.