Mexico City — The appreciation of the Mexican peso will affect the purchasing power gleaned from remittances to Mexico, in addition to other causes that mean families of migrants working abroad will receive fewer pesos from remittances this year, according to analysts.
So far this year, the Mexican currency is the second-best performer against the US dollar among emerging country currencies, having appreciated 4.8%, according to Bloomberg data.
The inflow of dollars from remittances continues to show historic figures. Mexico’s central bank (Banxico) reported that, at the end of 2022, remittances for the year totaled $58.49 billion, an increase of 13.4% compared to the previous year.
The exchange of dollars into Mexican pesos provides local families with a much-needed income, while the tourism sector also brings in significant revenues. The peso is also buoyed by the inflow of US dollars.
Economic slowdown in the US, the main impact on remittances
With the appreciation of the local currency this year, Mexicans are receiving fewer pesos for their dollars.
“Remittances would be affected, but due to several factors,” Guillermina Rodríguez, deputy director of economic studies at Citibanamex, told Bloomberg Línea in an interview.
The appreciation of the Mexican peso will have a lesser influence on migrants’ sending of remittances than has been since in the past, however.
Chief economist at BX+ Casa de Bolsa, Alejandro Saldaña, explained that migrants may have to send more dollars to compensate for the peso appreciation, but only if they are able to do so.
The main element that will affect the inflow of remittances is the US slowdown, according to Citibanamex’s Rodriguez.
“We are going to see a lower growth in remittances in the coming months, but we attribute it to the slowdown that is going to occur in the US,” she said.
It is expected that the US economic slowdown will begin to be observed in the third quarter of 2023, which will be reflected with an increase in unempoyment, and with it, fewer remittances to Mexico, according to BX+ Casa de Bolsa’s Saldaña.
“Decisions to send dollars to Mexico are associated with the employment situation in the US,” he said.
In February, the unemployment rate stood at 3.4%, above analysts’ estimates.
For now, the solid employment data supports the inflow of dollars into Mexico.
Banxico reported that in January, when the Mexican peso closed the month with an appreciation of 3.51% to 18.77 per US dollar, remittances totaled $4.40 billion, a decrease of 17% compared to December 2022.
“If we subtract the effect of inflation in January, remittances would have fallen in pesos by 3.9%. It means that the effect on purchasing power in nominal terms of remittances started off on the wrong foot this year, but it helped nominal growth,” Saldaña said.
Effects of the peso’s appreciation
“The exchange rate has both positive and negative effects,” according to Saldaña.
The benefits are for importers; it favors inflation since, by lowering prices, it provides a respite for local goods. But the losses are for exporters, as they receive fewer pesos per dollar and for those who receive remittances.
“It takes a little bit of purchasing power away from the remittances that Mexicans receive,” he said.