Background on Banco de México and Its Role
Banco de México (Banxico), the country’s central bank, conducts weekly auctions for government securities to manage monetary policy and influence short-term interest rates. These auctions are closely watched by investors, as they provide insights into Banxico’s stance on inflation and future interest rate adjustments.
Details of the Recent Auction
In the latest auction, Banxico maintained the 28-day Cetes (Certificados de la Tesorería de la Federación) rate at 7.35%, unchanged from the previous week’s increase of 8 basis points. The bank successfully placed 7,000 million pesos in these securities, with demand being 3.50 times the amount offered.
Banxico also issued 7,000 million pesos in Cetes for 91 days, with a rate of 7.59%. This represents a decrease of 0.03% compared to the previous issuance, and demand was 3.40 times the amount offered.
Additionally, Banxico auctioned 175-day Cetes for 14,200 million pesos at a rate of 7.69%, down 0.04% from the previous issuance, with demand being 2.80 times the amount offered.
Lastly, Udibonos for 20 years were auctioned for 6,830.13 million pesos at a rate of 4.75%, a decrease of 0.14% from the previous issuance, with demand being 2.68 times the amount offered.
Inflation and Monetary Policy Context
The auction took place following the release of data from the National Institute of Statistics and Geography (Inegi), which reported that inflation increased to 3.57% in August, remaining within Banxico’s target range of 3% ±1 percentage point for the second consecutive month.
Investors anticipate that Banxico will lower its benchmark interest rate by a quarter point at its upcoming monetary policy meeting on September 25, reducing it from 7.75% to 7.50%. This expectation stems from the bank’s commitment to keeping inflation in check and supporting economic growth.
Historical Trends in Treasury Rates
According to Monex Casa de Bolsa, the 28-day Cetes rate has decreased by 2.39% year-to-date, while the 91-day rate has fallen by 2.20 percentage points.
Key Questions and Answers
- What are government securities? Government securities, such as Cetes and Udibonos in Mexico, are debt instruments issued by the government to raise funds and manage public finances. These securities have varying maturities, and their interest rates influence short-term interest rates in the economy.
- Who is Banco de México (Banxico)? Banxico is Mexico’s central bank, responsible for implementing monetary policy, managing foreign exchange reserves, and supervising the financial system.
- What is the role of weekly auctions in monetary policy? Weekly auctions allow Banxico to adjust the money supply and influence short-term interest rates, which in turn affect borrowing costs for businesses and consumers.
- Why are investors anticipating a rate cut? Investors expect Banxico to lower interest rates due to the bank’s commitment to keeping inflation within its target range and supporting economic growth.
- What is the current inflation rate in Mexico? As of August, Mexico’s annual inflation rate is 3.57%, which remains within Banxico’s target range of 3% ±1 percentage point.
