The expectation of Bank of America Securities (BofA Securities) about the restrictive route that it will follow Bank of Mexico This year it does not change with the entry into function of the Package against inflation and famine, presented last week by the Mexican government.
According to the chief economist for Mexico and Canada at BofA Securities, Carlos Capistran, the central bank will take the rate to 9% at the end of the year. The plan’s measures limited the possibility of a rate hike of 75 basis points in the decisions of the Governing Board and will thus affect the speed of the rate increases, he stated.
But they do not contribute to subtracting the upward pressure on the underlying inflation trend, that is, it is the measurement that incorporates only goods and services whose prices are not subject to any type of seasonal volatility.
Interviewed by El Economista, he said that the anti-inflation plan will help to temporarily contain the increase in the prices of selected products. But since many of the proposed measures are not new and are already underway (the gasoline subsidy, for example), a much deeper impact is not anticipated.
Your forecast for the decision of Bank of Mexico this Thursday is for a new increase of half a point in the rate, with which eight consecutive increases in the rate will be spun, from June 2021 and a fourth successive increase of 50 base points will be completed, which will leave the yield at 7 percent. hundred.
From New York noted that the decision of the Governing Board will take into account the acceleration of the increases that the Federal Reserve of the United States is already applying and surely this trend will force Banxico to take the rate above 8.25%, which was the maximum reached in February 2019.
And he estimates that a rate in Mexico above 8% indicates a restrictive monetary policy.
Subsidies… the dilemma
Comparative data from the Organization for Economic Co-operation and Development (OECD), show that Mexico is the member country with the most moderate inflation in energy, 5.3% annually as of March.
The BofA strategist acknowledged that the subsidy applied by Mexico to energy prices “has worked to contain gasoline prices.”
However, he warned that a significant amount of public resources has been used to fund these subsidies. In fact, the cost of reducing pressure on gasoline prices is estimated at 300,000 million pesos, which is similar to the projected surplus for the price of oil.
Although they are not creating a hole in public finances because they come from the oil price surpluses, they are diverting surplus resources that could be used to purchase medicines, vaccines or improve schools, Capistrán stated.
I have no doubt that the subsidies helped contain energy inflation, the problem is that those who use their cars the most and demand gasoline are not those who have fewer resources.
The problem is not whether it helps contain inflation. The problem is whether that is where we want to spend public money.
Slowdown comes from the US
The strategist estimated that the Mexican economy will register an advance in the Gross Domestic Product (GDP) of 1.5% this year and 2% for the next. A performance that is linked to the dynamics of the United States.
It is not the Mexican economy that is going to slow down, since it cannot slow down the rate of growth that has never accelerated. The United States has been the engine of the economic rebound experienced Mexico after the pandemic and what is slowing down is the momentum of the United States, he clarified.
From his perspective, BofA’s baseline scenario for the United States continues to be for economic growth this year of 2.7%, which incorporates the impact of less lax monetary policy. Indeed, he admits that this slowdown could turn into a recession next year if the fed keep squeezing and eventually come to a restrictive position. But it is not the firm’s base scenario.
It has increased the possibility of a recession in USA for next year and based on this evolution, Mexico could be affected because it is the impulse that keeps it in a positive performance, but it is not our base scenario, he stressed.
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