The normalization of the monetary policy of the Federal Reserve (Fed) of the United States will accelerate the outflow of foreign capital from Mexico, mainly government debt, analysts warned.
According to experts, at the last meeting of the Fed’s Open Market Committee (FOMC) it was clear that they will soon begin to reduce the pace of asset purchases, currently $ 120 billion a month, known as tapering, and that interest rates could start to rise next year.
“The FOMC sent a strong signal that it will announce the phase-down in November, with President Powell signaling broad support for a timeline that would complete the process by mid-2022,” Jonathan Miller, chief US economist, said in a report. from Barclays.
As for interest rates, while half of Fed officials expect increases for next year, analysts forecast it to be toward the end or early 2023.
These adjustments are expected to have an impact on foreign holdings of Mexican securities.
According to data from Banco de México (Banxico), from December 31, 2020 to September 14 of this year, foreign investors withdrew 217 thousand 802.3 million pesos from the government debt market, equivalent to 10 thousand 836 million dollars.
Pamela Díaz, economist for Mexico at BNP Paribas, pointed out that the fact that the Fed has already announced the end of the support would result in outflows of foreign investors in the country.
“The fact that there is already a date, that everything is clearer regarding the start of tapering, of the monetary normalization cycle, this may cause certain exits from Mexico, and here the key is that they be orderly exits,” he said. .
He considered that, in addition to government bonds, the exchange rate may suffer from the tapering planned by the Fed, but he trusts that the communication given by the central body will cause an orderly accommodation of the financial markets.
Ernesto O’Farrill, president of Grupo Bursamétrica, agreed that the Fed, learning from past experiences, is seeking an orderly rearrangement of portfolios, especially in emerging markets, in order to avoid, as far as possible, episodes of volatility in the markets.
“After the painful experience that was had in the past, the Fed is going to be more explicit and gradualist in this tapering to avoid instability in the financial markets. In particular, in emerging markets there may be episodes of massive sale (sell off), and in the case of Mexico, we have 80 billion dollars of government securities in the hands of residents abroad, but it reached 116 thousand million dollars two years ago, ”he said.
More restriction in Banxico
Jacobo Rodríguez, director of financial analysis at BW Capital, indicated that the tapering process may be negative for emerging markets, including Mexico, due to possible outflows from the local debt market, since the entire process is estimated to last up to the middle of 2022, and estimates that interest rates in the United States would gradually increase.
“This would cause the trend of outflows of foreigners in Mexico to continue, a situation that has been maintained in recent years. Banco de México must take into account this possible scenario to keep interest rate differentials at optimal levels and avoid financial distortions, ”he said.
Alain Jaimes, an analyst at Signum Research, agreed that tapering would be detrimental for Mexico, as it would see a greater capital outflow. “The immediate effect would be a greater capital outflow. Now, I believe that Banxico is aware of this scenario, so it will continue with its restrictive monetary policy, raising interest rates, just like its peers. The foregoing, to try to mitigate the risk associated with capital outflows and achieve the anchoring of inflationary expectations ”, he added.