Background on Alejandro Saldaña and BX+ Bank
Alejandro Saldaña is the Chief Economist at BX+ Bank, a prominent financial institution in Mexico. His expertise and insights on the Mexican economy carry significant weight among investors, policymakers, and the general public. BX+ Bank is known for its thorough research and analysis of Mexico’s economic landscape, making Saldaña’s warnings on monetary policy particularly noteworthy.
Inflation Concerns and Rate Adjustments
Saldaña advises Banco de México to pause further interest rate cuts due to the persistent rise in underlying inflation. The underlying inflation has remained above 4% for three consecutive months, which Saldaña believes is incompatible with the current low-growth environment.
Underlying inflation serves as a pure indicator of overall inflation and provides insight into future price pressures. In July, it stood at 4.23%, signaling continued upward momentum.
Economic Growth Projections
BX+ Bank’s growth projection for Mexico’s GDP in 2019 remains at 0.5%, consistent since April, driven by external sectors and the resilience of domestic commerce and services.
Saldaña’s growth expectation surpasses the market average, as gathered by Citi’s weekly survey, which stands at 0.3%. This suggests a more optimistic outlook compared to broader market sentiment.
US Economic Slowdown and Its Impact on Mexico
Saldaña warns that the slowing US economy poses risks to Mexico’s export-driven growth, which was a significant contributor to the country’s performance in the first half of 2019 despite trade uncertainty.
Should the US economic slowdown persist, it may weaken Mexico’s export sector, potentially limiting growth prospects. Consequently, BX+ Bank anticipates that the benchmark interest rate will remain at 7.75% for the remainder of the year, staying within restrictive monetary policy territory.
Fragile Economic Recovery
Saldaña emphasizes that Mexico’s economic recovery remains relatively fragile amidst high uncertainty. He believes that nearshoring will only regain momentum once confidence in the US trade relationship is restored.
Increased private investment, spurred by improved business confidence, could further stimulate economic activity. However, Saldaña projects that the economy will only grow by 1.7% in the coming year, given the prevailing uncertainty.
Should economic activity pick up, inflation is expected to stabilize around 3.80% annually. This scenario might prompt Banco de México to resume its rate-cutting cycle, lowering the benchmark rate to 7.25%. Saldaña asserts that this level would still fall within the restrictive monetary policy boundary.
Fiscal Consolidation Efforts
Saldaña acknowledges that the ongoing public spending constraints support fiscal consolidation efforts. However, these measures have negatively affected economic activity. He anticipates that budgetary adjustments will continue in the coming years as Hacienda (the Ministry of Finance) strives to reduce the deficit.
Key Questions and Answers
- What is the main concern raised by Alejandro Saldaña? Saldaña advises Banco de México to halt further interest rate cuts due to the persistent rise in underlying inflation, which he believes is incompatible with the current low-growth environment.
- What are BX+ Bank’s growth projections for Mexico’s GDP in 2019? BX+ Bank projects a 0.5% growth for Mexico’s GDP in 2019, consistent since April.
- How does the US economic slowdown impact Mexico? The slowing US economy poses risks to Mexico’s export-driven growth, which has been a significant contributor to the country’s performance in the first half of 2019.
- What is the expected inflation rate and its implications for Banco de México’s monetary policy? Saldaña projects that inflation will stabilize around 3.80% annually. Should this scenario materialize, Banco de México might resume its rate-cutting cycle, lowering the benchmark rate to 7.25%.
- What role do public spending constraints play in Mexico’s fiscal consolidation? Public spending constraints support fiscal consolidation efforts, although they have negatively affected economic activity. Budgetary adjustments are expected to continue as Hacienda strives to reduce the deficit.
