Inflation in focus on policy moves for Banxico

"Our main job is to maintain inflation expectations well anchored"
File photo / EL UNIVERSAL
21/02/2017
13:10
Reuters
Mexico
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The Central Bank of Mexico will focus on risks to inflation as well as economic growth when deciding further monetary policy moves, Deputy Governor Alejandro Díaz de León said on Monday.

"Our main job is to maintain inflation expectations well anchored," Díaz de León said in an interview with Bloomberg TV, as he noted that the Central Bank of Mexico (Banxico) raised rates earlier this month to prevent a weak peso and a recent gasoline price hike from hitting inflation expectations.

"We think that the increase in rates that has been put in place through today has created a significantly orderly adjustment to significant shocks that the economy has been seeing," he said when asked if the central bank needed to do more.

Going forward, the next move by policymakers would depend on whether the U.S. Federal Reserve raises interest rates as well as "how this contamination of price formation could potentially affect the next inflation numbers and the output gap," Díaz de León said.

"We need to be mindful that probably the U.S. economy will accelerate its GDP growth and the contrary is expected for the Mexican economy," he said.

Mexico's gross domestic product growth is expected to slow to around 1.5 percent this year from 2.3 percent last year.

Díaz de León said it was difficult to answer whether the peso was undervalued or over-valued, noting the Mexican currency would be subject to volatility until there is more is known about U.S. trade policy under President Donald Trump, who has threatened to slap tariffs on Mexican goods.

"It will be very important for the peso to have certainty about the trade outlook going forward," he said. "We want to ensure until that information is fully determined that the price formation in the economy gets done in an orderly way."

Asked about his view on intervention in the currency market, Díaz de León said Mexico's policymakers have acted sparingly in moments of low liquidity: "The goal has been to foster good liquidity," he said.

 

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