Tuesday, February 08, 2005

Mexico doesn't have enough inflation to satisfy investors

This Bloomberg article is really bizarre. According to the writer, "Mexico's peso fell to a one-week low on speculation inflation slowed more than economists estimate in January, which could prompt the central bank to hold off additional interest rate increases."

Strange... I can hear the investors now "gee, what a disappointment, the central bank is actually being successful in bringing down inflation. Interest rates might go down, stock prices might go up, and bond prices might go up. Let's just get out of the way."

It doesn't stop there. Recently, Russia and Argentina have reported higher than expected inflation and witnessed their currencies appreciate. The logic is that the central bank will let the currencies appreciate rather than intervene by accumulating reserves. Still, since when was the big problem of developing countries having too much reserves?

Something must be going on...


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