This rise in Cetes leaves analysts in no doubt: the market anticipates a more restrictive stance from Banxico in its next monetary policy meetings. “The market is discounting a fairly aggressive rise in interest rates between now and the end of the year,” says Rafael de la Fuente, chief economist for Latin America at financial firm UBS.
For Gabriela Siller, director of economic and financial analysis at the Banco Base financial institution, there are two factors putting pressure on the rate: the restrictive monetary policy of the United States Federal Reserve (Fed) and the pressures of inflation, which in March stood at 7.45%, the highest since 2001.
In mid-March, the Federal Open Market Committee of the Fed decided to raise its interest rate to a range between 0.25% and 0.50%, after remaining practically at zero for three years. With this, the US central bank begins to tighten the brakes on the economy to avoid overheating and to be able to return inflation to its objective from the maximum in 40 years that it registered in March (8.5%).
For the economists surveyed by the Reuters agency, the Fed would be more aggressive with two increases in interest rates of 50 basis points each in the next meetings in May and June.
The market is closely following these movements that affect Banxico’s monetary policy. Banxico Deputy Governor Jonathan Heath made it clear at a public event: “We cannot have an independent or countercyclical monetary policy to that of the Fed.”
Groups of foreign bondholders are seduced by this dynamic to acquire Mexican debt instruments. The difference between the interest rate of the United States and Mexico allows them to borrow cheaply and place that capital in a country with a higher interest rate and thus generate a return. This strategy is known as carry trade.
Until now, the difference between the rates of the Fed and Banxico is up to 625 base points.
By 2022, the economists surveyed by Citibanamex anticipated that Banxico’s interest rate would close at 8%. But according to Siller, the market in derivatives operations is discounting a level of 9%.
“What the government values are reflecting is a more restrictive monetary policy with accelerated increases in the interest rate”, predicts Siller.