SHCP Updates its Risk BalancesBy Emilio Aristegui | Tue, 07/05/2022 - 07:49
In response to the economic slowdown and the geopolitical situation, the Mexican Financial System Stability Council (CESF) updated its risk balances to help the country’s financial system face existing economic challenges. During a meeting on June 30, the council also analyzed the evolution of the non-banking financial intermediary’s sector and reviewed the results of the Systemic Risk Perception Survey and issues related to the work of the Sustainable Finance Committee.
“The council updated its balance of risks and analyzed the challenges the Mexican financial system faces in the current situation, which combines the remaining effects derived from the pandemic, the geopolitical situation between Russia and Ukraine, as well as persistent global inflationary pressures and the tightening of the financial conditions,” said the Ministry of Finance and Public Credit (SHCP) via a press release.
SHCP also explained that global economic activity has slowed more sharply than expected. Global inflation also continued to rise due to an increase in food and energy prices, while global monetary policy continued to accelerate its adjustment process, as was previously anticipated. The response was due to supply and demand effects.
The US Federal Reserve (Fed) increased the target range for the federal funds rate, reducing its balance sheet as announced in May. Several emerging economies continued to adjust their reference rates upwards as well, as financial conditions continue to tighten with increases in interest rates while strengthening the dollar in case of greater risk aversion.
“In Mexico, in line with what was observed at a global level, the national financial markets showed mixed behavior and some volatility, reflecting this environment of greater uncertainty. The foreign exchange market presented an orderly behavior, and interest rates registered generalized increases,” explained the SHCP.
The Mexican banking system is currently showing resilience and a solid position with levels of capital and liquidity that adequately exceed regulatory minimums, reports SHCP. These levels of capital and liquidity allow for a prudent expansion of bank credit, which shows a robust and generalized reactivation that could lead to potential economic growth.