Minutes of Central Bank of Mexico meeting show dovish thoughts of latest board members Reuters

Anthony Esposito

Mexico City (Reuters)-The minutes of the latest monetary policy meeting on Thursday showed that Galia Borja, a board member of the Bank of New Mexico, became one of two dissenting dovish voices when the central bank was surprised last month by concerns about inflationary pressures. Raise interest rates.

In the vote of Banxico President Alejandro Diaz de Leon and members Irene Espinosa and Jonathan Heath, the bank’s five-person board of directors decided by a majority vote to raise the benchmark interest rate by 25 basis points to 4.25% at the June 24 meeting.

The minutes of the meeting provided Borja with some preliminary insights on the plight of how to implement monetary policy in an environment of high inflation and uncertainty. She is the newest board member of the bank.

Borja said that inflation has been under tremendous pressure in recent months, but most of it seems to be related to supply-related issues and changes in consumption patterns caused by the pandemic. “I think it is difficult to pass monetary policy in this situation.”

“The unpredictable tightening of monetary policy stance may be interpreted as a cyclical change rather than strengthening the current policy stance, which will lead to further tightening of local financial conditions, which is counterproductive,” she said.

Borja said that the best way to move forward is to align with the bank’s communication and monetary policy methods, which are characterized by prudence, caution, gradualism and predictability.

The Minister of Finance Arturo Herrera, who has been appointed as the next governor of Banxico, emphasized in an interview with Mexican media on Wednesday that future interest rate trends will depend on whether inflationary pressures are permanent or temporary, and The speed of Mexico’s economic recovery.

Herrera said that Mexico needs analysis, “because inflation may be due to the high concentration of economic activity in some industries with few participants, and then they can keep prices higher than the competition is fierce.”

Mexico’s annual inflation rate in June remained almost unchanged from 5.89% in May to 5.88%. The slowdown was slightly lower than expected and still well above the central bank’s target interest rate of 3%.

Most members of Banxico’s board of directors emphasized that although shocks affecting inflation are expected to be temporary, “given the variety, magnitude and extended time frame of their impact on inflation, they may pose risks to the price formation process,” said the minutes.

They stated that the risk balance of the path of inflation expectations tends to rise.

Most board members said that looking ahead, the bank’s monetary policy implementation will depend on the evolution of factors affecting inflation, its foreseeable trajectory, and its expectations.