Fundamentals shield Mexico: Carstens
Mexico is well positioned to withstand volatility, central bank governor Agustín Carstens says
Mexico’s "strong fundamentals" will help
shield its economy from the worst effects of a deteriorating
global business cycle that has already taken its toll on
emerging markets worldwide, its central
Agustín Carstens told LatinFinance in an
in advance of a surprise 25 basis point interest rate cut
Friday, Carstens said Mexico’s output would be
"much better" in the second half of the year than the first, as
economic activity in the US gathers pace.
that Mexico is very closely integrated into the US, that should
benefit Mexico in particular," he said, though he acknowledged
that the economy’s 'poor performance’
in the first six months of the year "is sufficient to
anticipate lower growth for the year as a whole."
central bank last month
cut its 2013 growth forecast to 2% to 3%, half the pace of
2012. On Friday, it unexpectedly cut its benchmark interest rate for the
second time this year, citing a sharp slowdown in the second
Economics said in a research note that the move was "likely to
be a one-off" and that interest rates would stay at 3.75% "for
a prolonged period." Analysts said further that any decision on
further monetary easing would depend on the timing and impact
of the US Federal Reserve’s moves to reduce its
$85 billion-a-month stimulus program.
said that while tightening global liquidity conditions will
"certainly create some volatility in the markets," Latin
America was in general well positioned to deal with the
Latin American countries have strong fundamentals to weather
this enhanced volatility. Obviously we could have some
turbulence in the markets but would that create major damage to
the economic strength of the region? I don’t think
so," he said.
Volatility has soared across emerging markets since the
Fed hinted in June that it could withdraw its stimulus program
sooner than expected, triggering capital flight from emerging
markets and leading to a sharp decline in many emerging
currencies against the dollar.
Carstens said currency volatility should not trouble countries
that pursue sound economic policies. "If you have strong
fundamentals you shouldn’t worry too much about
it. You should concentrate first in setting your fundamentals
and at the same time, doing more to promote growth," he
not immune to it – probably we didn’t
feel this as much before because expansionary fiscal and
monetary policies of some economies, advanced economies,
provided short-term relief for the world economy."
that a worsening business cycle was now having an impact on
emerging markets. "The business cycle around the world has
become more severe. Emerging markets are being affected by the
world business cycle," he said. "Most of the policy instruments
that advanced economies had have run their course and we
don’t have much space left."
emerging markets are "still growing much faster than advanced
economies" Carstens said they must now "mind the structure of
their own economies and try to engineer additional structural
reforms so that they can enhance their capacity to growth and
counterbalance the effects of external weakness."
"In Mexico, we are going through a reform process so we
don’t have to depend so much on the performance of
the global economy."LF
to read the
full interview with Mexico’s central bank governor