GlobalBank of America warns of risks for monetary policy and inflation due...

Bank of America warns of risks for monetary policy and inflation due to 2024 economic package

MEXICO CITY (apro).- The higher spending and budget deficit proposed by the Mexican government for 2024 would put pressure on monetary policy and the inflation rate in the country, warned Bank of America Securities (BofA Securities).

On August 8, the Mexican Government sent its 2024 Economic Package to Congress, which estimates a budget deficit of 5.4% as a proportion of the Gross Domestic Product (GDP), the highest in more than 19 years, and a higher spending of 1.2 GDP points.

According to BofA Securities, a larger fiscal deficit exerts upward pressure on the interest rate of the Bank of Mexico (Banxico), since it means more issuance than expected in advance, which “would once again put on the table the possibility of eventual rating downgrades.”

For Bank of America, the main driver of fiscal deterioration will be the proposed increase in spending of 1.2 points of GDP, compared to 2023, most of it destined for social programs such as the Senior Pension, which will be historic.

However, the government of Andrés Manuel López Obrador predicted a drop in income from 21.7% to 21.3% of GDP in 2024.

“A slowdown in GDP is a downside risk to income. And we see upside risks to spending: higher longer-term interest rates, greater support for Pemex and potentially a close federal election,” the investment bank noted.

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