Experts say private banks likely will postpone as long as possible any increase in interest rates to ordinary Mexicans to protect their market share, at a time when total loans and mortgages are expanding at annual rates of about 11% and 17%, respectively. That’s the highest volume over any comparable stretch since April 2013, data compiled by Bloomberg show. A survey for the central bank of 6,000 adults by NMG Consulting, published Monday, found family finances improved in the second quarter, albeit they remained much worse off than at the start of the century.
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The bull case on banks turns on expectations that higher interest rates will increase the profitability of their lending operations.
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“We’re still advising our clients that have interest rate exposure that they have not yet hedged, we’re still at historically very low rates, and that it makes sense to take some of the risk off the table” and lock in rates, he said. Thursday’s rate increase brings to an end an nearly seven-year period beginning with Carstens’s predecessor, Guillermo Ortiz, in which Banxico cut rates 11 times as the economy struggled with the global financial crisis and its aftermath.
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If, on the other hand, the economy is overheating, if wages and prices are going up too fast (inflating), and if the U.S.is starting to experience an ultimately inflationary environment that’s getting out of hand, the Fed has historically-at least since circa 1937-taken the opposite tack.
The bigger picture is that the United Kingdom labour market continues to tighten. That means incremental rate rises are in the pipeline.
The RRP rate is the “floor” rate for the Fed’s rate corridor, and the interest rate it pays banks on excess reserves (IOER) acts as the “ceiling” rate, which was increased to 0.50 percent.
The Fed announced Wednesday it will raise the rate by 0.25 percent, after years of keeping it near zero to aid with the recovery from the housing market collapse and the Great Recession.
“The Bank of England has continually changed the goal-posts for us, as investors, to try and decide how monetary policy is being decided and what the ultimate point of lift-off for the United Kingdom will be”, Scott Thiel, global head of bonds, at BlackRock, the world’s largest asset manager, said before the Fed decision.
“The U.S. economy has exhibited enough strength over the past year, and the unemployment rate has fallen far enough that raising rates by 25 basis points will not derail the U.S. expansion”, David Stockton, a former Fed economist and now senior fellow at the Peterson Institute for International Economics (PIIE), told Xinhua. Wednesday’s market’s reaction “was a confidence rally”, he said in an interview.
At the same time, concern about the volume of trading on Wall Street has been pushing estimates down for the current quarter.
Interest rates on savings won’t change as much, Mahoney said.
That might or might not become a problem in 2016. “We expect some shifts and possible repercussions for banks” funding, balance sheets, and capital”. On Wednesday, US indices – both the Dow Jones Industrial Average and the S&P 500 – closed the session with gains of about 1.5%.
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The confluence of the rate hike, low oil prices and a strong dollar will deal a blow to emerging countries and regions. But it also means the Fed needs simultaneously to “drain” dollars out of the system, making them more scarce and thus more valuable in terms of purchasing power.
