UPDATE 1-Fitch affirms Mexico rating, flags policy concerns

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(Adds comments by rating agency, response by Mexico, background)

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MEXICO CITY, Nov 17 (Businesshala) – Fitch Ratings on Wednesday reaffirmed Mexico’s long-term forex and local currency issuer default rating of “BBB-” with a stable rating outlook, a move that Mexico has sought to maintain access to. Welcome as a way. for international finance markets.

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The rating agency also said that Mexico’s economy is expected to grow by 5.9% this year and 2.8% next year, amid a supply crunch during the first half of 2022.

“Input supply-demand imbalances resulting from rising US demand for goods, most importantly semiconductors, have delayed industrial production recovery, particularly in Mexico’s auto sector,” Fitch said.

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Fitch said a higher-than-expected supply shock would hamper the Bank of Mexico’s monetary policy framework, which could result in further hikes in interest rates in 2022.

Fitch said the input crunch, which is expected to continue through the first half of 2022, has led to technical stagnation in the auto industry and could hit GDP growth by up to 1 per cent.

Despite maintaining Mexico’s rating, Fitch flagged a number of concerns, saying that Mexico’s “regulatory quality” has deteriorated during the current administration of President Andres Manuel López Obrador and that distrust of autonomous regulatory bodies is the investment climate and investment climate. continues to affect the quality of governance.

At the same time, Fitch warned that the electricity reform proposal championed by López Obrador, if passed, could lead to “underinvestment” in the power sector.

Fitch said the reform could also usher in non-competitive electricity pricing and undermine Mexico’s regulatory quality.

Mexico’s finance ministry said in a statement that Fitch’s decision to keep the rating stable will help maintain favorable access for the public and private sectors to international and domestic financial markets. (Reporting by Anthony Esposito in Mexico City, Writing by Diana Beth Solomon Editing by Matthew Lewis)

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