Social programs and direct cash transfers to people, as well as the sequence of increases in the minimum wage generated pressures on inflation that have forced us to maintain restrictive monetary policy for longer, explained the deputy governor of Banco de México (Banxico ), Irene Espinosa Cantellano.
Definitely, this year’s expansive fiscal framework made Banxico’s task more difficult and moving forward, even with the fiscal package oriented in the right direction of reducing the public deficit, we have inflation pressures to address, he stressed.
In the last interview she gave to El Economista as deputy governor of Banxico, she highlighted that she has not yet defined the meaning of the vote she will give in the monetary decision of December 19. The last meeting of the year, which will also close his cycle as a member of the Governing Board, a position that by law ends on December 31.
The data that you still require to decide the direction of your vote are the 2025 Income Law – which was approved the day before in the Senate – as well as the Federation Expenditure Budget; verify if core inflation will continue on a downward path; whether services inflation will consolidate the trend below 5%, and the evolution of geopolitical conflicts.
He admitted that the approved 12% increase in the minimum wage by 2025 will be a factor of additional pressure on inflation. Despite being more moderate than we have had recently, it is still double digit without being supported by an increase in productivity, he noted. This has caused companies to pass costs on to the end consumer.
The central banker ruled out leaving any type of recommendation to whoever will succeed her in the Banxico Collegiate Body, because she believes that whoever joins the Governing Board should have the freedom and autonomy to make their best contributions. You should feel free to make your own story.
Exchange depreciation does put pressure on inflation
According to the Deputy Governor, the trajectory of inflation is highly sensitive to variations in the exchange rate.
To illustrate its relevance, he said that in each of the monetary meetings they incorporate some depreciated exchange rate scenarios to see what would happen to inflation if a certain slip of the peso occurs.
The central banker explained that it is true that in an economic slowdown, the transmission or pass through of the exchange rate to inflation is lower. However, he clarified that a recent analysis by the Inter-American Development Bank shows that when depreciation originates from domestic factors, the pass-through to inflation is greater.
He recalled that as of June 2 there has been a depreciation of the peso and that the subsequent volatility events have not allowed a return of the peso to pre-election levels.
The subsequent volatility events he referred to are “the approval of some constitutional reforms that generated some concern or uncertainty regarding the rule of law.”
And in recent months and weeks, the peso “has also been affected by the electoral result in the United States, and the effect that this may have on the economic growth of our country and on trade.”
The Mexican peso is a very liquid currency, which is traded 24 hours a day, 365 days a year.
He recognized that the Board’s decisions do take into account the level of the exchange rate, volatility, operating conditions and it is an important variable that can affect the trajectory of projected inflation.
Neither dual mandate nor modify objective
The dean of the Governing Board agreed to answer what would happen if the intentions expressed by legislators from the majority party advance, in granting a dual mandate to Banxico, which includes economic growth or full employment.
“It would be difficult to comply because it would compromise the autonomy of the central bank, since it would involve the management of fiscal, commercial and even security policies (…) We definitely do not have the tools to comply with it,” he noted.
His passage through the Government Board includes the leadership of two governors: Alejandro Díaz de León and Victoria Rodríguez Ceja. During this journey, he voted 19 times in favor of raising the rate; 14 to reduce it and 23 to keep it at the same level.
“I have made the decisions as the economic circumstances have warranted and, above all, thinking that they will allow the fulfillment of the primary objective of the Bank of Mexico. If that caution coincides with the characteristics of a hawkish position, then I assume it.”
From their perspective, a review of the specific inflation objective would not be pertinent either, if it is not achieved first.
