Mexico’s central bank does not expect price shocks

Mexico's central Bank Governor Alejandro Diaz de Leon Carrillo speaks during an interview with Reuters on the sidelines of the Mexican Banking Association's annual convention in Acapulco, Mexico March 9, 2018. REUTERS/Henry Romero

Vastavam web: Mexico’s central bank does not expect significant shocks to inflation in the short term, the bank’s governor said on Friday, unlike 2017 when fuel price hikes and U.S. politics helped drive consumer price rises to a 16-1/2 year high.New central bank governor Alejandro Diaz de Leon justified a hawkish stance on interest rates, however, by saying he could not rule out such shocks.That was “a little above” the neutral interest rate level, Diaz de Leon told Reuters in an interview on the sidelines of a banking convention in the seaside resort of Acapulco.

Many economists view the neutral rate as one in which the economy is growing and inflation is stable. Interest higher than that could risk crimping growth.The bank has said it sees inflation falling and moving toward the central bank’s 3 percent target over the course of the year, reaching that level during the first quarter of 2019.“The downward trajectory is gradual, but this obviously depends on not facing shocks that could have a transitory and significant impact on inflation,” Diaz de Leon said.

Diaz de Leon said the bank has been “very prudent in giving forward-looking guidance on interest rates” due to the uncertainty the Mexican economy is facing.
Mexico’s peso currency, and consequently inflation, has been hit by U.S. President Donald Trump’s frequent threats to rip up the North American Free Trade Agreement (NAFTA), which underpins much of Mexico’s export-driven economy.