Banxico to inject MXN $750 billion to the Mexican economy

Banxico's measures aim to ensure there are credit lines, liquidity, and order during the economic recession

Banxico to inject MXN $750 billion to the Mexican economy
Banxico is Mexico's central bank - Photo: File photo/EL UNIVERSAL
English 22/04/2020 18:44 Leonor Flores Mexico City Actualizada 19:53

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Mexico’s central bank Banxico will give a breath of fresh to the economy with a double oxygen tank of actions that include lowering the cost of money and supporting full-service and development banking to improve the credit conditions for families and small businesses that have been affected by the COVID-19 lockdown.

It not only lowered the interbank rate by 50 basis points to leave it at 6% but it also announced 10 additional measures to inject resources for MXN $750 billion through national markets so as to ensure there is credit, liquidity, and order.

Five of the 10 measures are aimed to increase the response capacity of banks to renovate credit conditions for small businesses and families.

Almost one week from the meeting of Banxico’s governor Alejandro Díaz de León with Mexico’s President Andrés Manuel López Obrador in which he reiterated the autonomy of the central bank by asserting law is over any other circumstance, due to the request to deliver in advance the remnants of the operation, a more efficient plan was devised.

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The new measures were thought to be good news by experts consulted by EL UNIVERSAL because they will be beneficial for small businesses, the population, and the markets that will have liquidity during the economic recession.

In addition, they follow the same line as the main central banks in the world, such as the U.S. Federal Reserve, they stressed.

The manager of economic analysis of Banco Base, Jesús López, stressed that the actions revealed by Banxico are oriented to promote stability in financial markets and the continuity of credit lines.

He said that although it will not be a direct conduit, resources for up to $250 billion will be distributed so that micro, small, and medium businesses can continue taking advantage of credit lines.

“The objective is for them to have access to the resources, obviously through full-service and development banking.”

It also looks to provide credit in 18 and 24 months terms that involve MXN $100 billion.

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These two programs, that involve almost half the total budget for the package, are the most important to support the economy through credit lines.

The other measures are focused on promoting liquidity in the local financial market through different kinds of events for an orderly operation.

Although other actions had been revealed due to the obstacles faced by companies to fulfill their liabilities, they will need assessment to return to normality, López stressed.

Jesús López also addressed the measure taken regarding currency hedging to have the possibility of operating outside Mexico in different time zones.

“This allows to interfere directly in the foreign exchange market in a schedule where liquidity is lower and when speculative movements in Asia or Europe take place,” he mentioned.

He explained that a great part of the depreciation in March, the strongest peaks within the overnight, took place when the local market was closed and that that changed the exchange rate. “The idea is to attack this kind of speculative adjustments.”

This measure still has no date to enter into force since it will be determined by the Exchange Rate Commission, said Banxico.

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Reassurance
For the president of the Mexican Institute of Finance Executives (IMEF), Ángel García-Lascuraín, what Banxico did was what the country needed to provide liquidity to the economy.

It will reassure the population because Banxico is injecting resources for MXN $750 billion, which are equivalent to 3.3% of the GDP, and which are bigger than the federal government package that represents 0.3%.

“They are good news because it is a very important component to provide liquidity for all the micro and small businesses,” he asserted.

In a statement, the Corporate Coordinating Council considered the decisión was positive because it will help relieve the situation and shows the importance of its autonomy.

The institution mentioned that they hope this support package is complemented with tax measures from the government and hence help preserve Mexico’s economy.

Banxico forecasts that the first nine measures, mainly those for supporting banks to provide more credit lines and better conditions, will enter into force until September 30, 2020.

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