The Week in Finance: USMCA Reduces Uncertainty in Mexico

For the fourth time in a row, Banxico lowered the country’s official interest rate, allowing Mexico to remain as one of the most attractive emerging economies. The Ministry of Economy will present a program to boost economic development and Fitch has ratified Mexico’s credit rating.

In case you missed it, this is what made the headlines over the week!

• For the fourth time in a row, Banxico has reduced the interest rate by 25 base points, leaving it at 7.25 percent. This allows Mexico to continue positioning as one of the most attractive countries among the group of emerging countries.
• President López Obrador informed that while economic growth will be limited, the economy will effectively grow in 2020. To ensure this, his government will present before 2019 is over a plan to boost economic development. For the president, the elements that will boost economic growth in 2020 are the National Infrastructure Plan and USMCA’s ratification by the US and Canada.
• Despite the uncertainty of 2019, for Emilio Romano, CEO of Bank of America, Mexico is one of the most attractive countries for global investment. Elements such as controlled inflation and economic stability make it an attractive destination for global investment. For Romano, the trigger for private investment will be that authorities are able to generate trust among investors and to set up clear public policies that promote investment in long-term projects.
• According to Andrés Peñaloza, President of the National Commission of Minimum Wages (CONASAMI), the minimum wage increase to MX$123.22 (US$6.52) shows the government will not leverage Mexico’s competitiveness on low wages, sending a strong message to the country’s commercial partners.
• According to experts, in 2020 the Mexican peso is expected to face challenges and volatility.  According to CIBanco, in 2020 not only will the Mexican peso face the same conditions of 2019 but will also face more uncertainty.
• Regardless, Luis Niño de Rivera, President of ABM, says that 2020 will be a better year for credit placement. While in 2019 credit placement is at 6.5 percent, with stronger economic growth this number is expected rise.
• There is a lower perception today that Mexico will lose the investment grade in the next six months. According to a poll by Bank of America Merrill Lynch, 56 percent of those polled believe Mexico will lose the investment grade. A reduction from the 77 percent that was registered in November.
• Fitch has ratified Mexico’s investment grade, assuming that the US and Canada will soon ratify the USMCA. According to Fitch, USMCA’s implementation reduces uncertainty in a convulse global setting but states that the new agreement does bot broadens Mexico’s access to the US market nor strengthens future growth perspectives.