Exercising caution: Borja speaking at the Bloomberg Mexico Capital Markets Forum. The country’s central bank says it will be data-dependent moving forward and watching to see if the economy improves before bringing down the rate hikes. — Bloomberg
MEXICO CITY: Mexico’s central bank sees an option to break from its pattern of interest rate hikes in tandem with the US Federal Reserve (Fed) if economic variables improve, deputy governor Galia Borja says.
The Fed’s monetary policy is one of the elements that Banxico, as the central bank is known, takes into account when deciding its rate, but whether they match one another’s pace “is conditional on the type of shocks that we face and it’s not mechanical,” Borja said at Bloomberg’s Mexico Capital Markets Forum.
Asked about the chances of decoupling from the Fed, Borja said: “We’d like to see positive things continue.
“It’s not about declaring victory, but as I’ve mentioned, the forecasts we published in the previous decision with respect to this one were revised at the margin.
“General inflation is at better levels now and if many of these variables improve, then we will have to see,” she said.
Mexico’s central bank lifted its key rate to a record 10% last week with its fourth straight 75-basis-point hike.
The bank’s board said it would be data-dependent going forward, according to a statement accompanying the split decision, which saw deputy governor Gerardo Esquivel vote for a smaller, half-point rise.
The decision came after core inflation, a metric that strips out volatile items like fuel and is closely watched by the central bank, hit a 22-year high in October, while headline inflation appears to have peaked.
The persistence of core inflation pressures remains a concern for the bank, Borja said at the event in Mexico City.
Banxico has matched the Fed’s last five rate hikes. It often follows its northern neighbour’s rate increases to avoid having destabilising amounts of money leave the country, weakening the peso.
However, Mexico began raising rates nine months before the United States did, leading some analysts to ponder when it will start to slow its tightening.
The rate differential between Mexico and the US has oscillated around 600 basis points, Borja said, “higher than the average from 2008 to 2020, which was 450 basis points.”
The bank will take into account “all of the information available” as it seeks to anchor inflation expectations and has seen positive signs on the margin, said Borja.
The former treasurer in the Finance Ministry rarely speaks publicly and has generally voted with the majority since joining the five-member board at the start of 2021.
She dissented from the majority twice at the beginning of Banxico’s tightening cycle, which started in June last year.
An opportunity to decouple from the American path might present itself after the Fed’s next meeting in mid-December.
Last week’s data showed that US inflation fell more than expected in October, giving the Fed some wiggle room to ease up on its aggressive interest rate tightening.
The Bank of Mexico will announce its next decision the day after the Fed, on Dec 15. — Bloomberg
