The Day at a Glance | December 10 2020

The Top

· ECB announces greater stimuli.

· Senate approves Banxico Law reform for it to purchase dollars in cash; Deputies will debate this issue.

· The United Kingdom sets Sunday as deadline for Brexit agreement; failure of recent negotiations increase the likelihood of seeing a disorderly exit.

· Pelosi and McConnell are still not involved in negotiations for the approval of a fiscal package.

· Galia Borja was approved as Banxico`s Deputy Chair.

· Mexican government proposes increasing the minimum wage by 15% in 2021.

· Jobless claims increase to 853 thousand in the US (vs 725k e.); inflation accelerates more than estimated (1.2% annual, Nov.).

Economic environment

The European Central Bank announced a 500 billion euro increase in its emergency purchasing program, which will be extended for nine more months. In its monetary policy meeting, the ECB met market expectations by increasing the volume of purchased assets in its emergency program due to the pandemic in attempts to shield the economy in light of risks of a second recession and deflationary pressures. With this, the program has reached a total of 1.85 trillion euros and will be extended for nine more months until March 2022. Rollovers will be maintained towards the end of 2023. The bank also announced changes in its long term loan to banks program, in which it decided to loosen its credit conditions even more. The program, known as TLTRO-III, will be extended until June of 2022 and the quantities that banks can acquire will increase. Additionally, programs for the financing of transactions to ensure liquidity in the financial sector will be extended with an additional extension to the rules of accepted collateral regarding refinancing transactions. Interest remained unchanged.

The Senate approved Mexico`s Central Bank`s Law reform by majority, which will force the bank to purchase foreign currency in cash from local banks that record surpluses due to transactions related to remittances or tourism. The law seeks to have Banxico purchase coins and bills that institutions get through cash transactions, particularly those that can`t be repatriated. Recently, repatriations has become more complicated since US banking institutions have been reluctant to purchase those dollars because of risks related to its origin as well as possible money laundering sanctions that they would be subject to. For those who proposed the reform, they seek to solve a social issue that migrants face, who bring their dollars in to Mexico and must sell them at very low prices (even at a loss) in restaurants or hotels as credit and banking institutions are not accepting them because of how complicated it is to repatriate them. The purchase of bills and coins on behalf of Banxico, according to the law, will go on to be part of international reserves. Banxico made a statement in which it admits that the Senate ignored its recommendations and reiterated its concerns regarding the new law as it could leave the bank subject to sanctions that are within the regulations against money laundering. The opposition says the reform was voted on quickly and disregarded Banxico`s concerns. Gerardo Esquivel assured that the law puts the bank`s international reserves at risk and threatens the institution`s autonomy; he expects deputies to amend this decision. Of the total amount of remittance operations, 99% are carried out electronically and only 1% is done in cash, according to Mexico`s Central Bank.