Central Banks

Mexico central bank: No fears of 'currency war'

Bank of Mexico governor on 'currency war'
Bank of Mexico governor on 'currency war'

Mexico has enough currency reserves to withstand "jittery spirits" in currency markets, according to the Governor of the Bank of Mexico, Agustin Carstens, who brushed off fears of a "currency war".

Carstens said he had faith in the U.S. Federal Reserve, which he believed had gone out of its way to reassure markets and stress that central banks should focus on growth and recovery rather than exchange rates.

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"I think that has helped calmed down jittery spirits in markets," Carstens told CNBC, speaking at a European Central Bank gathering in Portugal.

Nathan Blaney | Photographer's Choice RF | Getty Images

"So in any case we are prepared, we have very high reserves, with strong fiscal and monetary policies. Currency war is a very strong term and I don't think we are in that situation now," he said.

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Emerging market currencies have had a volatile year so far on fears the U.S. will taper its bond buying program further, a move which has exposed large current account deficits in emerging market economies.

Analysts have labeled the group of emerging market countries most at risk when tapering ramps up the "Fragile Five". The group includes Indonesia, South Africa, Brazil, Turkey and India.

Benoit Anne, head of EM strategy at Societe Generale said he sees "considerable upside on the basis of the U.S. recovery" for the Mexican peso, which has moved between gains and losses this year.

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"If you can project, you can show that your economy has strong fundamentals, and is going to be able to grow in to the future, you are much better off. So this has been a very important fact why Mexico has been trying to do important structural reforms," said Carstens.

"We shouldn't forget that we are still in a situation where 50 percent of world GDP is growing below potential. I think the impact (of) the exchange rate is a secondary issue," he added.