Banxico Uncommitted to More Half-Point Hikes, Governor Says

(Bloomberg) -- Mexico’s central bank isn’t committed to a pace of half-point increases to its benchmark interest rate after delivering a hike of that magnitude in December, according to outgoing Governor Alejandro Diaz de Leon. 

The bank announced a bigger-than-expected increaseto borrowing costs last week, following four straight quarter-point hikes, in an effort to combat skyrocketing inflation. Diaz de Leon, who leaves office at year-end, said policy makers are navigating “uncharted territory” and shouldn’t constrain themselves before future decisions. 

“There’s this view that there’s either the 25 or the 50 basis-point lane, either you are in one or the other -- and I don’t see it that way,” Diaz de Leon told Bloomberg News during an interview in his office. “You would find it costly rather than beneficial to commit to something.”

The bank, known as Banxico, expects inflation to peak in the fourth quarter, he said, adding that the official projection of an average 7.1% increase in consumer prices during the fourth quarter implies that December’s print will be the high point. 

The Mexican peso fell slightly on the news that Banxico wasn’t committed to any specific future hikes, said Gabriela Siller, director of economic analysis at Banco BASE. It fell to an intra-day low of 20.87 to the dollar shortly after the interview was published, before recovering to 20.80 at 4:05 p.m. ET. 

Before starting to tighten monetary policy in June, Banxico had lowered rates by 3 percentage points in 2020 and an additional quarter point this year, providing Mexico’s only significant stimulus as the economy crashed during the pandemic.

Bank’s Independence

Yale-educated Diaz de Leon, who spent 16 years working at the bank before joining its board, has been the very image of a stolid central banker. He gives little away in public comments, rarely strays from complex jargon and has made cautious pragmatism central to his governing philosophy. 

Investors are now worried about the future of the institution under Victoria Rodriguez, a little-known public spending chief with little experience in monetary policy who was a last-minute pick by President Andres Manuel Lopez Obrador. The fact that the Mexican leader has expressed his desire for the new Banxico chief to govern “with a social dimension” only increased concerns over the bank’s independence going forward.  

Diaz de Leon poured cold water on such worries, saying the bank has “institutional inertia” that would support the new governor in her role. 

Diaz de Leon’s quiet, institution-centered approach has made him an occasional target of Lopez Obrador’s diatribes in his daily press conferences. The president has weighed in on what he thinks rates should be and attacked the bank for refusing to share windfalls from a foreign exchange surplus.

The outgoing governor said that Lopez Obrador’s opinions were part of natural “healthy debate” over the actions of a public institution. He emphasized that the president has never interfered in the bank’s decisions. 

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