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SPECIAL INSIGHT: FINANCE
In late June 2017, Finance Minister José Antonio Meade explained that the current inflation rate of more than 6 percent was caused by a sharp hike in gasoline prices in January combined with a plunge in the value of the peso after President Donald Trump took office. He is confident that the high rate “won’t last.”
Unsettled Forecast?
Take It to the Bank
The new administration in the United States is adding to an uncertain global out- look. For Mexico, this could bring particular economic and policy challenges. On the plus side, the financial sector is relatively well placed to weather the storm.
“Mexico has practiced very good macroeconomic disci- pline over the last decade or so,” says Joaquín Ávila, Co-Founder of EMX Capital, a Mexico-focused invest- ment firm. “That has allowed us to handle the volatil-
ity and uncertainty that exists today better than some coun- tries.” Indeed, Mexico’s financial institutions and markets are able to face challenges from a position of relative strength.
BANKING BUFFERS ...
The IMF recently noted that the medium-term economic outlook for Mexico is underpinned by strong macroeconomic
policies and relatively strong balance sheets. Solvency and liquidity stress tests on the banking sector indicate that the sector as a whole can withstand severely adverse
macro-financial shocks. Similarly, large listed corporations can broadly cope with adverse exchange rates, earnings, and interest rate shocks.
The financial sector in Mexico is still relatively small but is rapidly integrating into the global financial system. It is dom- inated by banks, with other financial institutions account- ing for around 30 percent of the sector’s assets. Commercial banking is highly concentrated, with the seven largest banks accounting for about 80 percent of total bank assets. Most of their activities are directed toward domestic lending.
... AND LIQUIDITY BULWARKS
A broad financial reform program was launched in 2014 to deepen the financial markets in Mexico. Credit to the private
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Credit: istock.com/traveler1116