Mexico’s president reveals rate rise hours before official announcement

Mexico’s President Andrés Manuel López Obrador on Thursday apologised after rattling the nation’s monetary sector by declaring the central financial institution’s rate of interest choice earlier than the official announcement.

López Obrador informed reporters on Thursday morning that the five-member board had voted to boost charges by a half proportion level to six.5 per cent, in a pre-emptive announcement that raised questions concerning the financial institution’s independence.

Later, at an annual banking conference in Acapulco, the president gave a uncommon public apology to the financial institution’s governor, saying that he thought the choice had already been made public.

“I wish to provide an apology ,” he mentioned. “I reiterate my dedication to respect the autonomy of the Financial institution of Mexico.”

The central financial institution raised charges on Thursday by a half-percentage level, because the president had mentioned.

It’s not the primary time the president has taken monetary markets abruptly. Late final 12 months, he spooked buyers when he abruptly modified his nominee to steer the financial institution, selecting an obscure public sector economist and elevating fears on the time over the establishment’s independence.

In 2020, a invoice proposed by the ruling Morena get together sought to pressure the financial institution to purchase extra {dollars}, in a transfer that critics mentioned undermined the central financial institution’s autonomy. The proposal was ultimately shelved after sturdy opposition.

Specialists lined as much as criticise the president’s announcement on Thursday, which has once more stoked fears that he needs to intervene with financial coverage.

“Since López Obrador entered the presidency, there have been a variety of issues concerning the autonomy of the Financial institution of Mexico,” mentioned Gabriela Siller, head of economic and financial analysis at Banco Base. “With as we speak’s announcement these worries have resurfaced once more.”

The Financial institution of Mexico declined to touch upon the information.

Mexico’s central financial institution turned impartial in 1994 and has constructed a status in markets for competence. Its new governor, Victoria Rodríguez Ceja, the primary lady to carry the put up, has sought to reassure markets and opposition lawmakers that she would guard its autonomy.

Like different central banks all over the world, the Financial institution of Mexico is making an attempt to tame excessive inflation, which hit 7.29 per cent within the nation within the first half of March. Analysts have been revising down their expectations for progress.

“I believe that this places the central financial institution in a foul place,” mentioned Alonso Cervera, chief economist for Latin America at Credit score Suisse. “Folks will probably be questioning the financial institution’s autonomy, why does the president know the coverage choice forward of time, who leaked it?”

Thierry Wizman, world rates of interest and currencies strategist at Macquarie Capital, mentioned the speed rise was according to expectations and that the pre-emptive announcement was an extension of López Obrador’s second-guessing and nudging of the central financial institution over the previous three years.

The Mexican peso reached 20.11 per US greenback, its highest degree since September 2021. Yields on Mexican authorities bonds throughout maturities had been broadly increased, with the two-year bond yield, which strikes with rate of interest expectations, rising to eight.46 per cent, its highest since January 2019.

As a result of banking convention happening in Acapulco, there had been a departure from the usual timings for central financial institution processes, Bloomberg reported, which had probably given the president earlier entry to the data.

Gabriel Casillas, chief economist for Latin America at Barclays, mentioned that he didn’t assume this could occur once more because the central financial institution resumed its typical schedule.