Bank of Mexico warns of risk of loss of confidence

MEXICO, Nov. 29 (Reuters) – Mexico's central bank on Wednesday warned that the economy could suffer sustainably if the new government's policy provoked "a loss of confidence" in the country and called for clarification by the government. of Andres Manuel Lopez Obrador.

Mexican financial markets tumbled in November as investors feared that the newly-elected president, who will take office on 1 December, will move away from the central bank's fiscal rules.

In its quarterly report, the bank warns that medium- and long-term growth prospects could be affected by "public policies that create market concerns and a loss of confidence in Mexico as a destination for investment."

Asked at a press conference, the governor of the central bank Alejandro Diaz de Leon said: "We must promote certainty, clarity".

"Investments commit resources from distant horizons and because of that, it's important to have clarity," he said. "Clear strategy and execution contribute to creating a more investment-friendly environment".

The proposals of Andres Manuel Lopez Obrador and his party to abandon a project to build a new airport in Mexico City or to limit bank commissions have caused a drop since the beginning of October of nearly 18% of the index S & P / BMV CPI, fell Monday to four and a half low.

The stock market index resumes Wednesday around 3%, encouraged like the other emerging markets by the statements of the Chairman of the Federal Reserve Jerome Powell, which seemed to signal an upcoming slowdown in the pace of monetary tightening of the US central bank.

Analysts are concerned that Andres Manuel Lopez Obrador may significantly increase spending or implement the radical economic reforms he has presented so far. On Tuesday, the president-elect said he would respect "the macroeconomic balance".

The governor of Mexico's central bank said on Wednesday that uncertainties in the financial markets in recent weeks had affected the volume of transactions in the bond market.

He added that the central bank was paying close attention to the markets and had the "instruments" to act if needed.

The central bank of Mexico has long allowed its currency to float freely and intervenes only in case of severe restriction of liquidity.

In its report released Wednesday, it revised slightly downward its economic growth forecast for next year between 1.7% and 2.7%.

The central bank also raised its inflation forecast for 2019, expecting the maintenance of an annual rate above 4% in the first half of the year.