The Day at a Glance | May 19 2021

The Top

*There is no more room for further interest rate cuts: Irene Espinosa, Central Bank of Mexico Deputy Governor.

*Worldwide trade increased 4% in the 1Q21 (10% annual) and recovered its losses during the pandemic, according to UNCTAD figures.

*The Federal Reserve`s meeting minutes are expected to be made public today; inflationary risks and the possible withdrawal of stimuli will be the main focus.

*Central Bank of Japan considers extending aid programs because of the pandemic.

Economic environment

Mexico`s Central Bank Deputy Governor, Irene Espinosa, assured that there is no opportunity to continue cutting the interest rate. In an interview with Bloomberg, the member of Banxico`s Governing Board affirmed that, given the current context, there seems to be no more space to continue cutting interest rates in Mexico and it`s possible that the central bank may have to start to increase them if inflationary pressures remain high. Espinosa considered that the end of the cutting of rates is good news since it shows that a solid economic recovery is expected to occur in the following quarters; she also considered that the monetary policy stance must change in light of an environment characterized by global and local economic recovery. According to Espinosa, global markets have started to take into consideration greater inflation in the US, something that affects Mexico and the rest of the world. Furthermore, Espinosa added that it`s possible that Banxico may have to increase interest rates before the United States Federal Reserve. Market players currently estimate an increase in interest rates will occur by February, but persistent inflationary surprises could move those expectations forward to the end of 2021. Lastly, Espinosa also talked about the fragility of public finances due to the government`s aid to PEMEX. The Deputy Governor considered that it`s unclear how the government`s financial aid to the company will help solve its structural and profitability problems – the source of resources to continue backing the oil company`s future is also unclear, which is something that`s putting pressure on public finances.