In the last 18 months we have seen constant increases in the reference rate by the Bank of Mexico (Banxico) as a monetary policy strategy to try to curb the inflationary pressure that generates a runaway increase in prices in the country; and everything indicates that this trend will continue in 2023.
At the beginning of February, Banxico announced its first 50 basis point increase of the year, to place it at a level of 11.00%. However, this need not be a cause for panic: higher interest rates can present unique opportunities for savings and possible portfolio rebalancing.
Safer investments offer higher returns
It is true, these increases made by Banxico are not good news if you have loans with a variable interest rate, because with each adjustment by Banxico the cost of your debt becomes more expensive, however, there are financial instruments that can maintain the value of your money.
The rates of return on some investments such as fixed term or savings accounts begin to generate higher interest when the reference rates increase.
But why does this happen? You see, investment instruments work like a loan. That is, investors are ‘lending’ their resources to the financial institution, which will pay them back on a certain date (term) and will pay interest on the loan. The interest rate agreed upon may be fixed or referenced to another leading rate, such as the Treasury Certificates, Cetes, or the Interbank Equilibrium Interest Rate, TIIE, and that is where savers gain when these reference rates rise.
In fact, many savers are already taking advantage of this to diversify their investment portfolio. According to Banxico data, M2 (composed of notes with yields payable at maturity) stood at 10.7 trillion pesos in September 2021 and in November 2022 ended at 12.1 trillion pesos, which means that more Mexicans saw in this savings instrument a good alternative to protect their money and continue generating yields above inflation.
Not only that, let’s remember that time deposits are one of the safest investment instruments and although this means that when the economy and inflation are stable, their yield margins are not always the most attractive, this is a good time to benefit from the security provided by this savings scheme and the interesting returns they offer in the current economic context.
In conclusion, if you are wondering how to put your money to work in times of high inflation? Take a look at the opportunities to be found in instruments that are indexed to inflation and interest rates, since experts are still forecasting months with more upward adjustments in interest rates.