SHCP, Banxico Act in Support of EconomyBy Peter Appleby | Thu, 09/24/2020 - 17:43
While COVID-19 cases and deaths are falling in Mexico, the economic consequences of the pandemic are still being felt. Banxico took action today to avoid rising inflation by implementing a modest cut in the interest rate, while SHCP developed a plan to help those struggling to repay bank loans as the deferral period comes to an end. Meanwhile, the UN says Mexico is among the hardest hit by the pandemic and explains its reasoning in three succinct points.
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In a meeting today, Banxico board members reached the unanimous decision to cut the benchmark interest rate from 4.50 percent to 4.25 percent. The cut, Banxico’s eleventh since August 2019, was modest in comparison to others. The rising inflation rate between 2 percent and 4 percent, as predicted earlier this year by the Central Bank, was perhaps one of the reasons behind the smaller cut in the interest rate.
In explaining its decision, Banxico noted that “the challenges in monetary policy due to the pandemic include both the significant impact on economic activity as well as the financial shock and its effects on inflation.” Banxico added that “having contracted markedly during April and May, economic activity in Mexico began to recover in June and July, although an environment of uncertainty and downward risks prevails. Ample slack conditions are expected throughout the time frame in which monetary policy operates.”
The United Nations Conference on Trade & Development (UNCTAD) has said that Mexico and Latin America are among the nations and regions most heavily affected by the economic fallout from the COVID-19 pandemic.
UNCTAD Senior Economist Alex Zueritea said during the conference that “the Mexican economy would record an alarming fall of 10 percent in 2020 and a rise of 3 percent in 2021,” adding that the virus has brought about “the deepest crisis in our memory.” According to Zueritea, emerging economies have lost double the amount they lost during the 2008 economic crisis.
The economist said that Mexico’s severe contraction was due to three main factors: Mexico’s dependence on manufacturing and exports, the impact on tourism and the lack of fiscal stimulus from the federal government.
With the six-month deferral period that banks offered to millions of clients in April at an end and economic opportunities looking no brighter, SHCP together with the National Banking and Securities Commission (CNBV), has launched a program to help those struggling to repay credits.
El Financiero reports that Minister of Finance Arturo Herrera and CNBV President Juan Pablo Graf Noriega jointly unveiled the program that will reduce monthly payments by 25 percent and extend payment times by up to 50 percent for those who have lost their jobs or had their income reduced due to COVID-19. The program will be in place until Dec. 31, 2021.
A statement from SHCP said that the program’s objective “is to reduce the credit commitments and protect assets (of individuals) by reducing monthly payments through interest rate reductions or deadline extensions.”
“We are looking to restructure these loans through a reduction of interest rates or extensions of credit terms […] All these restructurings must be based on a new evaluation of the payment capabilities of borrowers,” said Graf.