The current value of the peso against the dollar is more balanced for the Mexican economy and is far from affecting inflation goals, said Jonathan Heath, deputy governor of the Bank of Mexico (BdeM).
An exchange rate at the levels it is at now, from 19 to 19.50, is better valued for the economy, more balanced. A 16.50 sounded too overrated. I don’t think it will play a major role in our battle against inflation.
he commented.
In the videoconference Inflation Outlook and Monetary Policy, organized by Invex, Heath explained that the challenge lies in inflation in the service sector, and that it is not clear whether it can be easily broken. I think that is the challenge from now on.
.
He recalled that merchandise prices fell significantly and there is a danger that underlying inflation will remain at current levels if the resistance in service prices is not broken and merchandise begins to rebound.
I see it as a quite feasible risk, a very important risk that deserves a lot of caution and a lot of prudence in our decisions.
he admitted.
Regarding movements in interest rates, he stated that if the United States Federal Reserve (Fed) continues to lower its interest rate continuously, Mexico will have to go in that direction.
In the short term we have room for maneuver, but in the medium, not even the long term, we must have a relatively synchronized cycle (…) which means that in the future if the Fed is lowering rates, we will also end up lowering them late or early, because we cannot go against the United States monetary cycle.
Absence of investment is cyclical and temporary
The deputy governor pointed out that it is very likely that both public and private investment in the second half of the year will be practically absent.
That is what happens in the last year of each six-year term, he stated.
He explained that the sectors wait to see the rearrangement of the projects and then invest again.
That is what we are seeing for the second half of the year: an economy in which we are still going to see some dynamism, much less than before, but some dynamism in household consumption, both public and private investment stopped (… ) and practically everyone waiting to see how the six-year term starts
he reiterated.
He commented that this scenario implies that the gross domestic product gap is closing and that there is less space between potential and estimated GDP.
He highlighted that in the forward-looking measurement in which 20 different sectors are considered, the group made up of manufacturing companies is being included. outsourcing that disappeared, which means that the economy’s potential GDP is being overestimated.
In January 2019, the plenary session of the Permanent Commission of the Congress of the Union approved the appointment of Jonathan Heath as a member of the BdeM governing board for the period that ends on December 31, 2024.
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