Lesson in Mexico's Monetary Policy: Part 4

The central bank is authorised to auction its reserves of US dollars if the peso depreciates by 2% or more against the previous day's close. In this way, the central bank can increase liquidity in the market and smooth volatility in the value of the currency.

In 2009 the central bank put in place a programme of interest-rate swaps for up to Ps50bn (US$3.7bn) to facilitate banks' liability management, enabling them to swap exposure to long-term fixed-rate instruments for short-term variable paper.

In January 2011 the IMF renewed Mexico's precautionary, two-year US$72bn flexible credit line (FCL). The FCL insures against possible volatility in global markets by supporting the country's balance of payments and international reserve position.

Source: Economist Intelligence Unit