Mexico says it will not pay for a border wall after Donald Trump's US presidential election win as the peso hit lifetime lows overnight.
As Mr Trump forged toward victory, the Mexican peso plunged 13 percent in its biggest fall in 22 years before paring losses to trade down 7.9 percent at 19.76 per dollar.
Mr Trump visited with Mexican President Enrique Pena Nieto during his campaign. Photo: AFP
Mr Trump's threats to amend the NAFTA trade agreement with Mexico and tax money sent home by migrants to pay for building a wall on the southern US border have made the peso particularly vulnerable to events in the US presidential race.
"Very hard times are coming to Mexico," Mexican bank BASE's analyst Gabriela Siller said.
President Enrique Pena Nieto said on Twitter he was ready to work with Mr Trump, calling the neighbouring countries friends who "should continue to work together for the competitiveness and development of North America".
However, Foreign Minister Claudia Ruiz Massieu reiterated Mexico would not pay for Mr Trump's proposed wall along the US border. The threat that Mexico would pay for the wall was a key feature of his speeches.
Ratings agency Fitch said Mr Trump's victory could add risks to Mexico's economic growth, while Moody's warned the government may not meet its goals of cutting its budget deficit if flows of trade or foreign investment wilted under Mr Trump.
"While policy direction from the Trump administration is not yet clear, any changes that materially disrupt trade or financial flows would be credit negative for Mexico," Moody's senior sovereign analyst Jaime Reusche said.
Both Moody's and Standard & Poor's rating agencies put Mexico's credit rating on a negative view earlier this year.
Gabriel Casillas, an economist at Banorte, predicted Mr Trump's victory would shave 0.3 percentage points from overall 2016 economic growth for Mexico, and said the peso could suffer for months as the market tries to figure out what Mr Trump could do in office.
"Because of the uncertainty of what Trump could do, consumers will postpone purchases, companies will postpone investments," Casillas said.
He added that he thought Mr Trump's actual policies would fall short of his rhetoric, not least because unwinding trade with Mexico would be easier said than done.
"I don't think Trump will do a lot of the things he said he will do," he said.
Analysts said the peso had been able to recover from its record low after Trump took a measured tone in his victory speech and did not invoke any of his threats against Mexico.
Mexico's benchmark IPC stock index fell more than 3 percent initially, but pared losses to sit down 2 percent to 47,500 by early afternoon.
"The market has calmed down a bit and given the benefit of doubt to a more conciliatory Trump," said Mexico City Barclays economist Marco Oviedo.
Mexican-based economists had expected a snap interest rate rise, but central bank governor Agustin Carstens said on Wednesday morning that the bank would take any necessary measures pending market conditions.
He said it would hold a monetary policy meeting as scheduled on 17 November, but did not announce any immediate steps to support the currency.
Mexico has already raised its benchmark interest rate three times this year to support the peso.
Mexican Finance Minister Jose Antonio Meade said authorities were monitoring the situation and would act if needed.
"It is important to recognize that market operations have remained ordered. This has been seen in the last hours," Meade said.
The central bank last hiked its key interest rate in September by 50 basis points, lifting it to 4.75 percent to anchor inflation expectations following a sharp depreciation of the peso.
Mexico has more than $175 billion in foreign reserves, and Carstens said last month he would consider using a $90 billion International Monetary Fund flexible credit line "in the event of an external shock."
- Reuters