The decline in inflation, in conjunction with the possibility that the Bank of Mexico (Banxico) keep the interest rate fixed at 11.25 percent at least until November of this yearcould generate a great attraction for investors.
The real interest rate will be the big draw in the fixed income market and perhaps the most prominent average return of the markets in general.
downward inflation
According to the most recent expectations of the analysts, contemplated in the survey prepared by Citibanamex, expected inflation by 2024 would be 4 percent and for this year around 4.66 percent at the end of the year.
If the expectation is validated, at the end of the year or at some point, the general inflation rate will reach Banxico’s maximum tolerance range, which as we know is 3 percent plus/minus one percentage point, which means that the maximum tolerance rate is precisely 4 percent.
Thus, a point in favor for investors will be the performance of inflation; in fact, this year it has already behaved favorably, sometimes boosting the real rate that has reached levels of 6.25 percent, the highest in more than a decade.
Fixed rate
As we know, Banxico has announced that its reference rate could remain fixed at the current level of 11.25 percent for an indeterminate time throughout this year; Analysts consider this time at least until next November, or even the remainder of 2023.
This interest rate level is very attractive for investment, especially in the current context in which small investors can access these returns through mechanisms already in force.
Even in the event that Banxico’s nominal reference rate falls, the real interest rate would remain very attractive given the path of inflation.
The rate of return will begin to drop from the following year, unless something extraordinary happens in the following months, considering that there are real risks for that period.
Real rate between 4 and 6 percent
Based on the above assumptions, the real interest rate in the Mexican markets could be at a floor of 4 percent and a ceiling of 6 percent during the second semester.
Is this performance low or high?
The 4 percent floor would actually be even one percentage point above the overall rate of inflation that would be achieved in the United States, which would be about 3 percent at its lowest point.
Consequentlythe real rate of 6 percent would certainly be an extraordinary return especially in the scenario of downward inflation.
To size it with other options, analysts expect that the nominal rate of funds in Mexico would be around 7 percent and that the fluctuations in the stock markets are constant, generating great investment opportunities, but also great risks.
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