Monetary policy will have to remain restrictive for the remainder of the year to bring down inflation, warned the deputy governor of Banco de México (Banxico), Irene Espinosa.
“Banxico’s constitutional mandate is to ensure price stability and since there has not been a clear downward inflection in headline or subjacent inflation, we have to maintain the restrictive policy,” he said.
When giving the master conference of the Agribusiness Forum Business Summit 2023, organized by the business consultancy Deloitte, he took the most recent data (from January) to explain that the underlying component, which better reflects the medium and long-term trend of inflation, it stood at 8.45% in January, surprising on the rise.
Although he acknowledged that the Governing Board has adjusted the monetary stance since June 2021 to bring the rate to restrictive ground, he emphasized that inflation has not shown a forceful inflection point.
In this 20-month span, the central bank has applied 14 consecutive rate hikes that have taken it from 4% to 11% where it is now. In this same period, inflation went from 5.88% annually to 7.91% in January, with a second consecutive monthly increase.
The central banker observed that globally, central banks moderated the magnitude of their hikes, although they indicated that additional rate increases are still required and that they will keep them at high levels for a long period of time.
This global context of restrictive financial conditions will also put pressure on economic activity, he predicted.
We are facing a weak economic environment with rates that will remain high for some time.
He recalled that currently the central bank has a growth expectation that is in a range between 1 and 2.6% that could be adjusted.
Private sector specialists anticipate that Mexico’s GDP will be 1.1% this year.
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