There was further uncertainty about whose books these assets resided on, generating a marked rise in counterparty risk aversion amongst financial institutions. That is, institutions became less willing to lend to each other, both because of concerns about the financial strength of the counterparty as well as a desire to hoard any available liquidity, should they themselves need it.
Upside risks include more significant pass-through from a weaker peso down the road, as well as the resurgence of spikes in noncore inflation prices and eventual aggregate demand pressures. Close monitoring of these risks is all-important in view of the fact that analysts’ long-term inflation expectations remain above the 3 percent target. Sustained convergence with the target must be consolidated.