Pemex’s rating deterioration will not have a short-term impact on Mexico’s note: CESF

In the event that the economic and financial context causes a deterioration in the rating of Petróleos Mexicanos (Pemex), Mexico’s sovereign note does not run a risk of being affected in the short term, warned authorities and supervisors participating in the Financial System Stability Council (CESF).

“The three main rating agencies ratified their ratings for the sovereign during 2021, keeping them at investment grade, which reduces the risk of effects on said rating in the short term,” they said.

After holding the last meeting of the year, the financial authorities that are part of this instance recognized that the evolution of the pandemic increases the risk of a prolonged and more accentuated weakness in consumption and domestic investment.

At the meeting, where the governor Alejandro Diaz de Leon participated for the last time on behalf of the Bank of Mexico, they noticed an increase in the delinquency of non-bank financial intermediaries’ portfolios and a drop in their profitability.

However, they stressed that the sector has a small participation in the system as a whole and does not represent a risk of “potentially systemic” scope.

Volatility and rates up

They stressed that the context of tightening global financial conditions, the result of increases in interest rates in advanced economies, should be an observation factor.

The authorities that are part of the CESF and they meet periodically as a measure of early identification of risks, they highlighted that the Mexican financial market has shown a rebound in volatility that led to a “certain” depreciation of the exchange rate, as well as a generalized increase in interest rates.

They showed that risk aversion during September and mid-November has been fueled by concerns about the evolution of inflation and the appearance of new variants of Covid-19. And that this volatility has been accentuated by the prospects for monetary policy in advanced economies.

The CESF meets under the coordination of the Ministry of Finance and the Bank of Mexico and is made up of the heads of the National Banking and Securities Commission (CNBV); the National Insurance and Surety Commission (CNSF); the National Commission of the Retirement Savings System (Consar); and the Institute for the Protection of Bank Savings (IPAB).