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IMF Approves Record Credit Line for Mexico Based on Confidence in Economy

13 September, 2012

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.