Mexico City — With Fitch Ratings having downgraded the credit rating of the United States (US) from “AAA” to “AA+” and assigned a stable outlook to Mexico’s main trading partner country, some analysts are looking at how the downgrade could affect the country’s southern neighbor.
The downgrade in the sovereign rating was already anticipated by the market due to the fact that the rating agency kept the US rating on negative watch, even after the government and Congress reached an agreement on the debt ceiling at the end of May.
Four analysts consulted by Bloomberg Línea agree that Fitch’s downgrade could bring episodes of volatility for the Mexican peso in the short term, despite being an expected announcement, and that was even forewarned by the ratings agency.
Analysts did not mention any impact on Mexico’s public finances or on the country’s sovereign rating, which stands at BBB- with a stable outlook on Fitch’s scale.
Fitch Ratings’ announcement also comes in a context where the neighboring country’s economy looks to be in better shape after the government announced that during the second quarter of the year it grew 2.4% year on year.
This is what analysts consulted by Bloomberg Línea had to say:
Humberto Calzada, chief economist at Rankia Latin America
In the short term, the Mexican currency will depreciate due to the movement of capital, explained Humberto Calzada, chief economist at Rankia Latin America.
However, the downgrade of the US rating is a long-term concern, according to the strategist.
“It is a warning for the US government to implement a fiscal adjustment,” he said.
The Mexican peso traded above 16.88 per dollar Monday (Mexico City, 17:12 hours). Meanwhile, the currency’s one-month implied volatility curve again registered a slight upward adjustment to 11.172%, levels observed at the end of May
James Salazar, deputy director of economic and financial analysis at CiBanco
Analysts at CiBanco estimated that the currency may approach 16.95 per dollar, however, limited movement is expected.
The effect will be visible in US Treasury bonds, which are expected to rise despite expectations that the Fed has reached the end of its monetary tightening cycle, said deputy director of economic and financial Analysis at CiBanco, James Salazar.
The strategist recalled that in 2011, Standard & Poor’s also made a downgrade in the credit rating of the US. At that time, the Mexican peso showed a depreciation of 50 peso cents. The difference is that, in May of this year, Fitch Ratings warned about this cut.
“There will be adjustments, but minor ones. It is an issue to pay attention to since US debt, in theory, is the safest,” said Salazar.
Luis Gonzali, co-director of investment at Franklin Templeton Investments
The Mexican ‘super peso’ is probably going to see little impact in the short term, said Luis Gonzali, co-director of investment officer at Franklin Templeton Investments.
“I believe that all this idea of denial that the markets are experiencing will end up generating little volatility, but if the background is not changed, which is that the debt ceiling has to stop being a politicized issue, there will be an impact in the medium and long term,” he said.
He added that, if we look at what happened in 2011, the year that would be the only historical reference of a downgrade of the US rating, the Mexican peso depreciated, US rates went down, and the market acted as if the US were a refuge for capital.
But today, the market is not doing anything, he pointed out.
Gonzali said Fitch’s downgrade of the US is going to be a decision that the market and economies are going to take time to digest. “It is not easy to think or get used to the idea that the country that was AAA par excellence is no longer so, and that this could bring certain disruptions, especially in the medium and long term”.
Gabriela Siller, director of economic analysis at Banco Base
Mexico will not be affected because the problems of the United States are different, but the downgrade of the US may cause volatility in the exchange rate and is likely to depreciate the Mexican peso when markets open on August 2, said Gabriela Siller, director of financial analysis at Banco Base.
“The market already knows what the level of US indebtedness is, and is not paying as much attention to Fitch’s cut as it did in 2011,″ she added. Standard & Poors downgraded the US sovereign rating from AAA to AA+ on August 5, 2011.