Stronger Mexican peso cuts the value of remittances from the U.S.

Mexico's vibrant remittance ecosystem, one of the world's largest, supporting millions of families, is now facing severe pressure due to a significant increase in the value of the Mexican peso and rising inflation, disrupting lives for many in the country.

With Mexico receiving nearly $60 billion in remittances annually, primarily from the United States, these financial transfers play a crucial role in household spending in the nation.

The Mexican peso has surged by more than 14 percent against the U.S. dollar this year. Just a year ago, it traded at around 20.40 pesos per dollar, but on Friday, it reached a seven-and-a-half-year high of 16.63 pesos per dollar.

Thestrengthening of peso can be attributed to factors such as higher interest rates and the relocation of manufacturing capacity to the region, impacting remittances in Mexico.

Mexicans face remittancechallenges

President Andres Manuel Lopez Obrador's substantial investment in social assistance programs and encouragement for countrymen to send funds back to Mexico have made consumer spending a pillar of economic development since the end of the Covid-19 pandemic.

Reuters quoted Carlos Serrano, the head economist at BBVA Mexico, as saying that the strengthening peso has worsened the buying power of remittances, particularly affecting lower-income families in states that receive the majority of remittances.

Headline inflation, which had reached a peak of 8.7 percent last summer, has since decreased to less than half that rate. However, core inflation remains two percentage points higher, leading the central bank to maintain interest rates at 11 percent, creating pressure for borrowers.

Despite remittances to Mexico heading for another record year, it presents a challenge for the Spanish-speaking country. Reuters quoted Pablo Lopez Sarabia, an economist at Tecnologico de Monterrey, as saying that the rise in remittances indicated that some Mexicans are sending more money to tackle the impact of inflation.

(Inputs from Reuters)

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