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Deputy Governor Esquivel Hints That Banxico May Not Match FOMC

MEXICO
  • Mexico’s central bank won’t necessarily raise interest rates in lock-step with the US Federal Reserve throughout its entire monetary tightening cycle, according to Deputy Governor Gerardo Esquivel.
  • “We can move in tandem with the Fed for a while as we have done in the past two decisions, for example, but that’s not necessarily what’s going to happen in the future for one reason: we started to move earlier than the Fed,” Esquivel told Bloomberg News in an interview on Monday, noting that Mexico is closer than the US to its neutral rate, which neither speeds up nor slows down the economy.
  • “The Fed is facing a very tight labor market, but that’s not the situation in Mexico,” he added. “In the US, they are facing an excess of demand in certain markets -- that’s not the case in Mexico.”
  • Esquivel’s comments are interesting given last week’s split vote where one of Banxico’s five board members voted for a 75 basis-point hike. Additionally, the bank said it may consider “more forceful measures” if needed to hit its inflation target.
  • However, given Esquivel is well known as the most dovish member on the committee, the comments more likely signal that Mexico will come to the end of its tightening cycle before the Fed, given their earlier lift-off – with all eyes on future core CPI readings to determine when that may be.
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