The Central Bank of Mexico, Banco de Mexico’s latest data showed a record high in inward remittances for the month of March defying all odds.
Mexico received $4.02 billion in remittances from in March, a 33% increase from $2.69 billion in February 2020, and a 36% increase from the $2.96 billion in March 2019, the Bank of Mexico figures showed. Another positive takeaway from the data is the adoption of electronic money transfer to send money home.
The much-welcomed surge in remittance flows comes after the World Bank recently released its report forecasting a decline of 22% in remittances globally. Remittance is one of the highest foreign exchange earners for the Mexican economy. The sharp surge in remittances is a relief for both the Mexican government and the households, especially the vulnerable households who have been hit particularly hard.
The United States is home to millions of people of Mexican origin. Not surprisingly, most of the remittance transfers were sent from the United States. Amid the coronavirus outbreak, the Mexican Peso (MXN) to US Dollars(USD) was free falling. Mexican immigrants working abroad especially in the US were most likely taking advantage of the favorable exchange rate USD/MXN.
"The high flow of remittances in March, with a much stronger (dollar) and a moderate inflation rate, brings the 12-month annual flow of remittances in real pesos, their purchasing power, to a new historical peak," central bank board member Jonathan Heath wrote on Twitter.
Historically, remittances have been counter-cyclical even in times of financial crisis and geopolitical tensions. However, considering the nature of the crisis, the winning streak may not last for long as earning potentials of the Mexican immigrants continue to fall due to recession-induced by the outbreak in the United States.
More on the economic impact of Coronavirus pandemic on the US economy.
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Alberto Ramos, an economist at Goldman Sachs, wrote in a note to investors. “We speculate that perhaps fearing a significant deterioration of the employment and income prospects in the U.S., many workers may have capitalized on a favorable USD/MXN level to send part of their accumulated savings in the U.S. back to Mexico,”