(New throughout, adds bets on rate hike, adds market reaction, analyst comment)
By Luis Rojas
MEXICO CITY, March 6 (Reuters) - Mexico’s peso tumbled on Friday despite central bank intervention, hitting a six-year low as investors fled emerging markets and fixed-income investors bet that higher interest rates are in store on both sides of the border.
Unexpectedly strong U.S. jobs data fueled bets that the U.S. Federal Reserve could raise interest rates in June, which could hasten the investor exodus from emerging markets.
Mexican policymakers have suggested they could raise local interest rates to increase the appeal of domestic debt.
“With the weak peso and the higher probability that Fed goes in June, that all means that we should think of a preemptive hike by Mexico,” said Benito Berber, an analyst at Nomura in New York.
The peso slid more than 2 percent on Friday to 15.5210 per dollar, its weakest since March 2009. The central bank sold all $200 million offered in a rules-based auction to support the peso, which continued to fall.
Mexico’s central bankers are worried that deep peso losses could affect financial stability.
Foreign investors have amassed record holdings of around 2.15 trillion pesos ($139 billion) of local-currency debt and a stampede for the doors by investors could drive much deeper peso losses, analysts said.
“Mexico is one of the markets with the heaviest foreign ownership,” wrote analysts at Citi FX in a note on Friday, saying the peso could soon hit 16 per dollar.
Yields on short-term Mexican interest rate swaps jumped to the highest in more than a year as investors bet that Mexico could hike its benchmark interest rate from a record low of 3 percent by April.
Speaking at an event in Mexico City, Central Bank Deputy Governor Manuel Sanchez said the peso slump had so far done little to fan inflation.
“There could be some contamination of inflation from the weakness of the peso; so far the contamination has been minimal, but it’s a risk we’re monitoring,” he told reporters.
Sluggish domestic demand is expected to help contain price pressures in Latin America’s second biggest economy in the months ahead, and Sanchez said he expected inflation to be around 3 percent both this year and next. ($1 = 15.4680 Mexican pesos) (Additional reporting by Michael O‘Boyle; Editing by Simon Gardner and David Gregorio)