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Latin American Economy & Business - October 2016 (ISSN 1741-7430)
Mexico prioritises currency over growth
Although Mexico’s monetary authorities have taken pains to emphasise that they are not targeting a particular exchange rate, periods of sharp peso depreciation have been followed by a hike in domestic interest rates over the course of 2016 – most recently at the end of September. Yet with inflation remaining low and GDP growth weakening, critics allege that monetary policy tightening at this stage will further impede the pace of growth. The central bank (Banxico) will hope that by acting pre-emptively, inflation expectations will remain anchored at current low levels, but the reality is that higher interest rates will have little impact on supply-side price pressures.
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