Analysts and observers praised Mexicos
central bank governor as an architect of macroeconomic and
financial stability in his country, a man who skilfully
maintained strong support for the new wave of reforms brought
by Mexicos new government.
The Mexican central bank deserves the honour
for their standard monetary policy in a world full of creative
monetary policies, says Rodica Glavan, fund manager,
emerging markets fixed income at Insight Investment Management.
By not interfering with the path of the foreign exchange
rate, they let the currency, rather than growth, take the hit
of economic adjustment (in contrast to other more
interventionist countries in the region). They have also
correctly looked through the temporary price rises, as
inflation has now come back within the target band.
Inflation in Mexico fell due to easing pressures on
agriculture products prices. In July it came within the target
range for the first time since February. In September, Banxico
cut the overnight interest rate by 25 basis points to 3.75%,
surprising many in the markets who had expected it to stand pat
after delivering a cut of 50 basis points in March, the first
Mario Robles, Commerzbank analyst, says Carstens
has done an extraordinary job handling monetary policy.
He has been a very patient man before cutting rates in a very
complicated environment. He waited until he deemed it
absolutely necessary to cut rates. He didnt cut rates
[before] because it was a very volatile environment. When the
rest of the world was cutting rates because they were expecting
a very negative scenario, he realized that the implicit
monetary conditions in Mexico were going to be relaxed because
of a weaker peso. He recognized that the liquidity was going to
Carstens was very good at handling monetary policy
in relative terms, looking at how the global liquidity flowed
into Mexico during the Federal Reserves quantitative
easing policy, Robles adds. He did a fantastic job
adjusting monetary policy in order to reflect that. This has
been governor Carstens most impressive asset.
Inflation has remained under control, and at the
same time the country had a well-functioning foreign exchange
market, without any currency wars being played, says Pablo
Goldberg, head of emerging markets research at HSBC. The
foreign exchange reserves increased and the central bank did a
good job in guiding the markets. I think they
communicated very well to the markets their steps and their
reasoning, and that has been very effective in terms of guiding
investors, Goldberg says.
The biggest challenge for Carstens in the year
ahead is the fact that foreign ownership of local securities is
significant, Robles says. If there is financial
dislocation in the markets, lets say because something
happens in the US, or in Europe, a financial accident, he needs
to manage the exit of those capital flows.
Another area where Carstens could improve things is
that of the fees charged by local banks to consumers and
companies, which are very high by international standards.
Fees in Mexico are very expensive. If you use your credit
card, they charge you a fee; if you go to the ATM, they charge
you a fee; if you use more than, say, three cheques a month,
they charge you a fee, says Robles. If he can
continue to bring that to international levels, which are
lower, that would have a great benefit for the financial system
and for the consumers of financial services. They can promote
competition between banks, bring some regulation to allow the
banks to be more competitive, he adds.
Goldberg notes that if the governments
reforms are put forward in an aggressive manner,
Mexico could see some more foreign money coming in. And
then, how the central bank deals with that will be
interesting, he says. Inflows are always welcome,
but dealing with them is an art. Governor Carstens did
not respond to Emerging Markets requests for
comment. Antonia Oprita