Economics: The Financing Tap is Tightening

MEXICO - Report 22 Jun 2017 by Mauricio Gonzalez and Esteban Manteca

The issuance of credit to the non bank private sector slowed during the first quarter of 2017 relative to the pace of previous years. Both the business and consumer credit segments continue to grow at better than 5%, but that is well below the levels of past years, especially 2016, when growth was running in the 15% range.

Over the medium term we expect a more pronounced deceleration of financing due to the rising cost of money caused by higher funding costs, a narrowing of foreign currency flows and a possible weakening of consumption owing to a tapering of the disposable income of Mexican households in an environment marked by higher inflation.

The lack of business or consumer optimism could also imply reduced demand for credit as uncertainty remains pronounced on a number of fronts, including the direction the upcoming Nafta renegotiation might take and how those trade relations might directly affect specific sectors of the economy.

In this week’s Economic Outlook we analyze the evolution of the financing to the private sector through the first quarter of 2017 and data on commercial bank lending as recently as April of this year.

On a final note, Banco de México is expected to raise its reference interbank lending rate, currently at 6.75%, by 25 basis points when it holds its monetary policy review and makes its interest rate announcement on June 22, according to the latest Citibanamex survey of private sector analysts.

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