Fundamentals shield Mexico: Carstens
Mexico is well positioned to withstand volatility, central bank governor Agustín Carstens says
“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 bank governor Agustín Carstens told
LatinFinance in an interview.
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 quarter.
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
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 fallout.
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.
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 said.
are 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.”
said 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.”
He added: “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
here to read the full interview with Mexico’s
central bank governor Agustin Carstens.