Carstens defends step to “collaborate with growth”
Mexican central bank governor reaffirms inflation-targeting mandate while defending action to help country´s economic trajectory
Mexico's central bank governor Agustín Carstens has
defended what he said was a decision to "collaborate with
growth" in an unexpected 50bp rate cut that took markets by
surprise in June.
|Mexican central bank governor Agustín
Source: Banco de México
"If we can collaborate with growth, without affecting the
compliance of our mandate, we will do so," he said in an
interview with LatinFinance in his office in Mexico
City. "We believe we can converge to the 3% inflation objective
at the beginning of 2015 with a [base] rate of 3%."
After the cut, which brought the base rate to a historic low
of 3%, some private sector economists wondered whether growing
impatience in Mexico with low growth under the reformist
government of President Enrique Peña Nieto may have
played a role.
But Carstens was quick to reaffirm the inflation-targeting
mandate of the central bank. "The triggering of the action was
not growth. The triggering of the action was [the question of]
how could we converge to our inflation objective" he said.
"We take [growth] into account as long as [it] effects the
inflation trajectory. Our main mandate is inflation, it's not
Banxico's credibility in markets had been maintained, he
"Inflation expectations were anchored, are still anchored,
and we are on our way to converge to the 3% inflation
objective," he said.
The inflation rate had fallen to 3.875%, from over 4% at the
beginning of the year, partly due to the end of one-off effects
from government fiscal measures.
Inflation would fall further early next year as the state
moves towards a new fuel pricing policy, meaning smaller
increases in domestic fuel prices, he said.
"We saw this perspective for inflation, and at the same time
we realized that we had a rate of growth below our potential,
and that our output gap was negative. That allowed us to
realize that we could converge to the 3% objective, with a
lower rate of interest. That's why we acted: we believed that
we could hit our target, on a lower rate of interest."
Nevertheless, developments in June and July "ratified the
fact that it would be difficult for us to reduce interest rates
further in the near future", he said. "It's less likely now."