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The Board of Governors of the Bank of Mexico (Banxico) assumes that economic activity poses downside risks in a context of electoral uncertainty and institutional weakness.
The five members of the collegial body incorporated in their decision rate of 7.75% the fact that "crime and public insecurity are a challenge to the monopoly of state power. "
They noted that, in recent times, "the public insecurity has worsened even in Mexico City, this might assume that it is no longer a geographically isolated phenomenon."
In the 60 minutes of the central bank, corresponding to the monetary announcement of June, they refer to a member of the Board of Directors who noted that "growing insecurity has affected the economy. productive activity of the country. "
Public insecurity has also been a concern for private sector specialists who, since February in 2014, they placed it at the top of the five major growth limits according to Banxico's monthly survey and, since then, they have remained a constant factor of concern for the participants in the survey.
The same central banker mentioned in the minuta added as another additional risk factor, "the possibility of future changes in the fiscal position, which could adversely affect the perception of sovereign risk."
In this meeting, which took place 10 days before the presidential elections, they warned that could be the postponement of investment projects or a reduction in consumer spending, due to the associated uncertainty the electoral and post-election process, as well as the renegotiation of the North American Free Trade Agreement (NAFTA).
reach 3% or in 2019
Board members decided to increase the rate to a level unmatched since 2008, We observe that there are upside risks that could exert pressure on inflation.
Should pressures persist such as higher exchange rate depreciation, higher prices for gasoline and propane gas, or product expansion? Subject to tariff measures, the risk that inflation will slow down in its rate of convergence towards the target will increase.
One of the Council members explained that the prospect of prolonged NAFTA bargaining could imply a higher level of exchange rate than the rate expected for the rest of the year, which will represent an obvious upside risk for inflation that has begun to materialize.
"The majority" mentioned the effect that tariffs might have on certain US-imported products and inputs "although the impact on inflation (…) has been estimated to be limited and of short duration. "
Another considered that the impact on inflation could be higher as the list of products subject to such tariff measures would be lengthened.
Another country felt that the depreciation of the peso could have a longer impact.
Gas continues to support
Most board members pointed out that inflation continued to decline until May. But some have pointed out that overall inflation has moderated the rate at which it has fallen since last January.
In fact, most pointed out that the decrease was partially offset by higher prices for gasoline and liquefied petroleum gas.
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