Banxico Authorized to Buy and Sell Government Debt in Secondary Market

Overview

• The Diario Oficial de la Federación published modifications to Banxico’s operating rules this month that let the central bank hold auction-based purchases and sales of government securities and Brems in the secondary market.
• Under the new procedure Banxico must publish the auction rules no later than the banking business day before each auction, shortening prior disclosure timelines.
• Market analysts at Banco Base and Valmex describe the change as a precautionary expansion of Banxico’s toolkit to provide liquidity and act as a buyer of last resort in episodes of market stress, citing the central bank’s 2020 liquidity facilities as precedent.
• Opinion commentators and some economists warn that buying government paper in the secondary market could functionally resemble indirect fiscal financing, raising constitutional questions tied to Article 28 and concerns about central-bank autonomy.
• Economists also note risks for inflation and the peso if large-scale purchases inject substantial pesos into the economy, and say investors and rating agencies will watch whether the tool is used only in limited stress episodes or more routinely.