Mexico, IMF and the Central Bank

The IMF published its Article IV consultation with Mexico. The IMF wrote that while “Mexico has navigated successfully a complex external environment” it “remains exposed to external shocks including risks of growing protectionism”. According to the report, “Mexico’s strong fundamentals and policy frameworks will continue to underpin the economy’s resilience” but it also “urged vigilance to potential shocks”. The IMF emphasized the importance of adhering to the planned fiscal consolidation and welcomed the efforts to strengthen the national oil company. It also called for monetary policy decisions to remain data dependent and for the central bank to remain vigilant. Meanwhile, the Citibanamex survey estimates for headline and core inflation stood at +0.67% and +0.13%, respectively, for the first half of November. If these projections are accurate, annual headline inflation would reach 3.2% versus 3.0% October, while annual core inflation would also stand at 3.2%, up from 3.1% last month. Our projections are slightly lower at 0.52% (3.0% yoy) and 0.07% (3.2% yoy) for headline and core, respectively. The main source of uncertainty in the first half of November, is the extent of the upward adjustment to electricity prices given the end of the temporary subsidy season. As a reference, in the past three years the energy price increase alone has led to an average 0.52 percentage point contribution to the biweekly headline print of mid-November. Moreover, Central Bank Vice-Governor Manuel Sanchez noted that the overnight rate could be increased if the US Fed raises its policy rate. Yesterday in an interview with Reuters, Mr. Sanchez hinted this, while also highlighting that the peso is likely to see further weakening pressures if incoming US President Donald Trump enacts damaging policies toward the Mexican economy.