Banxico requests greater stability

The Bank of Mexico (Banxico) warned that monetary policy adjustments have to be accompanied by an environment of certainty, with institutional strength that encourages investment to effectively combat inflation.

Mexican peso confidence
Mexican peso confidence

In its monetary policy minutes, which was published two days before the Federal Government's transition, the Governing Board of the agency headed by Alejandro Díaz de León, considered that since the last meeting increased nervousness in the markets, due to pressures arising of the interior of the country.

Among them, they listed the announcement of the cancellation of the Texcoco International Airport, in addition to the concern for the Pemex business model, based on the statements of the president-elect, Andrés Manuel López Obrador, who assured that the Mexican oil company it will stop exporting crude in the medium term, since it will be dedicated to supply the country's energy needs and intends to ration the use of hydrocarbons within the country.

The Bank of Mexico explained that the uncertainty was compounded by some legislative projects, such as the proposal to eliminate some banking commissions and the disappearance of the Retirement Fund Administrators, as well as other initiatives focused on public spending.

These factors, explained the agency, added volatility in different emerging markets, although they affected to a lesser extent.

This context caused the exchange rate to have a significant depreciation and an increase in its volatility, while medium and long-term interest rates increased, and sovereign risk indicators deteriorated, said Banxico.

This caused inflation forecasts to rise, and some members of the Governing Board mentioned that, in the absence of an adjustment in monetary policy, inflation would take longer to reach its target range, located at three percent with tolerance for inflation one percentage point, he added.

Therefore, the members of the Governing Board agreed that inflation faces important risks related to the possible adoption of policies that affect the process of price formation in the economy.

The majority of the members of the Governing Board held that, all this has generated an environment of greater uncertainty, to which it was added that investor confidence in the country is going down, so it is necessary to take measures of public policy aimed at strengthening confidence in the Mexican economy.

They also said that an environment with clear rules is essential, that they reinforce the institutions, and that they stimulate private investment.

In this sense, the five members of the Governing Board of Banxico agreed to increase the benchmark interest rate, to preserve the credibility of Banxico and send a solid signal of its commitment to meet the inflation target.