Why does Banxico accelerate the withdrawal of money from the market?

The Bank of Mexico makes the largest sale of Cetes so far this year, via extraordinary auctions, which involves subtracting liquidity, removing money from circulation in order to avoid upward pressure on interest rates or the speculative purchase of dollars to the same one that diminishes the potential to the demand of goods and services to have a greater control over the inflation.

The central institute carried out this Wednesday an extraordinary auction of Cetes for terms of 182, 259 and 336 days, placing all of the up to 40 billion pesos offered. While the demand for these instruments was reported in 66 thousand 442 million pesos in Cetes, according to data from the Bank of Mexico.

The relation between those offered in Cetes by the central institute and those demanded by the participants in the extraordinary auction was 1.66 times, although it showed marked contrasts between the terms.

“Despite the more dovish bias in the Bank of Mexico minutes published last week, the operation showed a modestly weaker demand to our expectations with a total coverage ratio of 1.66 times” according to those expressed in a document by the analysts of Banorte.

Where a greater appetite was observed was within a year, when the relationship between supply and demand was 2.04 times.

The yields were located at 8.20, 8.16 and 8.05 percent in the terms of Cetes auctioned at 182, 259 and 336 days, respectively.

So far in July, it is the second time that this mechanism has been used to reduce liquidity, in the midst of both external and internal tensions, for an amount that involved a withdrawal of money from the market for 75 billion pesos. greater so far this year.

Through the sale of debt paper, in this case of short term, such as the Cetes, the central institute seeks to balance the surplus of liquidity , of money, to avoid that they derive in pressures of rise in the interest rates in the secondary market or that in some of them the exchange market is oriented to the purchase of dollars.

By withdrawing money from circulation through the sale of Cetes, in this case, it also helps to moderate the demand for goods and services, which gives us the possibility of better control over inflation.

Purchase and sale operations of securities are one of the main instruments that the Bank of Mexico has to manage liquidity in both a short and long-term horizon, either withdrawing money or injecting it into the market.

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