The expectation of Bank of America Securities (BofA Securities) regarding the restrictive path that Banco de México will follow this year does not change with the entry into force of the Package against inflation and famine (Pacic) presented last week by the government of Mexico.
According to the chief economist for Mexico and Canada at BofA Securities, Carlos Capistrán, the central bank will raise 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, a measurement that only includes 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.
His forecast for the Bank of Mexico’s decision this Thursday is for a half-point increase in the rate, with which eight increases in the rate will be spun, from June 2021 and a fourth successive increase of 50 basis points will be completed, which will leave the revenue at 7 percent.
From New York he observed 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%, the maximum reached in February 2019.
He estimates that a rate in Mexico above 8% indicates a restrictive monetary policy.
Subsidize or spend better
Comparative data from the Organization for Economic Cooperation and Development show that Mexico is the member country with the most moderate inflation in energy, 5.3% annually in 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, since they come from surplus oil prices, 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.