The Mexican central bank’s battle against inflation has highlighted its autonomy, as the governing board defies pressure from President Andrés Manuel López Obrador to keep interest rates lower to help the economy, according to officials, lawmakers and analysts.
Concerns about the autonomy of the Bank of Mexico (Banxico) skyrocketed in March after López Obrador revealed the key rate hike by 50 basis points hours before the monetary entity made it official.
The president later apologized, saying he thought the decision was already public.
The slip, however, fueled concerns about central bank independence that surfaced in late 2021, when López Obrador appointed Victoria Rodríguez, a little-known finance official, to lead the central bank after unexpectedly withdrawing support for his previous candidate, former Treasury Secretary Arturo Herrera.
However, while López Obrador has begun to warn of the risks for the Mexican economy due to the increase in credit costs, Banxico has presented an increasingly united front in raising rates despite the deterioration in the outlook for increase.
On June 23, Banxico unanimously approved its largest increase in the key rate in recent history -of 75 base points that mirrored the one made by the United States Federal Reserve (Fed) a week earlier- after increases of 50 base points at each of its four previous monetary policy meetings.
The next day, López Obrador urged Banxico and other central banks to find ways to control inflation instead of raising rates so as not to affect the economy.
The central bank, to which four of the five governing board members were appointed during the López Obrador administration, is unlikely to be swayed by such comments, two senior officials, speaking on condition of anonymity, told Reuters. anonymity.
Government critics agree.
“The bank is behaving as an independent authority”, said Ildefonso Guajardo, deputy of the centrist Institutional Revolutionary Party (PRI) and former Mexican Secretary of Economy. “He’s not trying to please the president”, he added.
The central bank did not respond to a request for comment on whether it would be influenced by the president’s suggestions.
Guajardo said he believed López Obrador was unlikely to seriously interfere with Banxico’s independence because the president had come to understand that Mexico’s poor, his main base of popular support, would suffer the most from financial instability.
Instead, López Obrador’s recommendations to the central bank were aimed at sending a message to his supporters that suffering from higher interest rates was not his doing, said Raúl Feliz, an economist at the CIDE think tank in Mexico City.
The central bank tends not to respond to López Obrador’s comments, although even Gerardo Esquivel, arguably the most moderate governing board member chosen by the president, has publicly confronted him.
During his administration, López Obrador has repeatedly spoken of the stability of the Mexican peso, which Banxico’s rate hikes have helped sustain.
With inflation largely imported and near a 21-year high of nearly 8%, a stronger peso mitigates price pressures, Feliz said. López Obrador will be careful not to jeopardize that situation as the 2024 presidential election approaches, he added.
“Imagine if we came to the election with an out of control exchange rate and out of control inflationHappy said.
López Obrador has so dominated the government that the central bank’s traditional counterweight, the finance ministry, has been undermined, which could give Banxico more autonomy, said Patricia Terrazas, an opposition lawmaker and former finance commission president. in the lower house.
Clashes over politics caused López Obrador’s first finance secretary to resign just seven months after taking office. Two years later, his replacement, Herrera, left office to head the central bank before the president left him for Rodríguez.
Although he had no previous experience in the central bank, Rodríguez has performed with professionalism and the independence of Banxico has passed “many testsGuajardo pointed out.
In fact, Banxico’s governing board votes have become more unanimous as efforts to tackle rising inflation intensify.
When Banxico embarked on its current tightening cycle last summer, it announced six split decisions in a row. But his announcements have been unanimous in two of the last three rises, even when the president has promoted a policy of greater relaxation.
“They are clear about the great responsibility that the central bank implies”, said Terrazas, of the center-right National Action Party (PAN). “Until now, the bank does its homework”, he added.