1 Banco de México has raised the benchmark interest rate four times since the end of June of this year. These monetary policy decisions have not been unanimous within the central bank’s Governing Board, but they have been recognized as correct by the vast majority of experts. They have not served, however, to control inflation. This is above 6% and experts surveyed by the central bank project that it will close the year around 6.8 percent. This would be the highest year-end inflation in two decades. There are many questions we can ask about the effectiveness of these central bank decisions, one that is worth putting on the table is: What would have happened if the Bank of Mexico had not raised rates … What would have happened to inflation?
2 In theory, interest rate increases also serve to retain or attract capital. A high rate is attractive, as long as the country meets other criteria; exchange rate stability; inflation level; degree of autonomy of the central bank and confidence of investors in the country, among others. In 2021, there has been a strong outflow of capital that was invested in Mexican government debt. From January to November 1 they were 267,000 million pesos. This figure is an absolute record. It exceeds the mark established in 2020, when it was 257,000 million pesos between January and December. Last year money came out in a context of large declines in interest rates. We went from 7.25 to 4.25, thanks to seven casualties. This year, capital outflows increased, despite the rate increases, can the central bank do something else… Someone else in the National Palace?
3 Banxico’s decisions in 2021 are similar to those made by other central banks in emerging countries. In Brazil, the interest rate went from 2.25 to 7.75 in the period from March to November 2021. In Chile, the reference rate started the year at 0.50% and is now 2.75 percent. In Turkey, the rate hike has been one of the most drastic in the world. It started 2021 at 9% and now it is at 19 percent. An interesting fact is that the president of Turkey has been very active in removing his central bankers. Erdogan affirms that the rise in interest rates leads to increases in inflation. If he could prove his theory, he could win a Nobel Prize in economics.
4 The central banks of the world’s largest economies have kept interest rates unchanged in 2021, as part of a set of measures to boost economic recovery. This is the case of the Federal Reserve of States and the European Central Bank that maintain rates of 0 percent. The Central Bank of China left rates at 3.85 percent. In the case of Japan, the central bank rate is negative, -0.10. For Mexico, the most important rate decision is that of the Fed. Until recently it was assumed that the United States would keep rates unchanged until 2023. Inflation data for October, which shows the highest levels in 30 years, It has sown concern that the Fed could start raising rates in 2022. If so, the Bank of Mexico would have additional pressure to raise rates.
5 The monetary policy decision that the Bank of Mexico took yesterday is the penultimate in which Alejandro Díaz de León Carrillo will participate. This economist born in 1969 has been governor of the central bank since December 1, 2017, when he replaced Agustín Carstens. The last interest rate decision that Díaz de León will lead will be on December 16. It is almost a fact that that day there will also be a rate increase. The central banker will close his management in the Halcón plan, to use a term used by Anglo-Saxon commentators. The next governor will be Arturo Herrera, close to AMLO and whom many anticipate will be more Paloma, in the sense of a supporter of a less aggressive attitude in fighting inflation. Will be?
Editorial Director General of El Economista
Safe
Degree in Economics from the University of Guadalajara. He studied the Master of Journalism in El País, at the Autonomous University of Madrid in 1994, and a specialization in economic journalism at Columbia University in New York. He has been a reporter, business editor and editorial director of the PÚBLICO de Guadalajara newspaper, and has worked for the newspapers Siglo 21 and Milenio.
He has specialized in economic journalism and investigative journalism, and has made professional stays at Cinco Días in Madrid and San Antonio Express News, in San Antonio, Texas.
Reference-www.eleconomista.com.mx