LatinFinance - September/October 2015 - 110
AWARD
CENTRAL
BANK
GOVERNOR
Banco de México has succeeded in pushing inflation down to a record low thanks to
clear communication with financial markets. By Phil Thornton
Critical clarity
E
ven set against Latin America's turbulent economic history, 2015 is unlikely to be
a year to savor. Economic growth across the continent is expected to post a six-year low, inflation is at its highest since 2003, currencies have slumped sharply and speculation over tighter
US monetary policy threatens financial stability. Central bankers have their work cut out.
While the 9% average inflation that the International Monetary Fund is forecasting for
2015 is skewed by rates circling 100% in Venezuela and 20% in Argentina, inflation remains a
problem for the rest of the region. The cost of living rose above the mid-point of central bank
targets in most major economies.
This trend is especially troubling as it comes at a time when growth is sub-par.
This tough environment provided the backdrop to LatinFinance's 2015 Central Bank Governor of the Year Award.
Each year, LatinFinance surveys ratings agencies analysts, private-sector credit analysts
and independent economists on central banks' performance across several areas, including
managing monetary policy, controlling inflation, ensuring financial stability and overseeing
exchange rate policy. The award also takes into account the banks' transparency and clarity
in communications with markets, independence and institutional strength, between July
2014 and June 2015.
This year Agustín Carstens, governor of Mexico's central bank, Banco de México, takes
the honors for leading the institution that tops a list of countries receiving positive feedback,
along with Chile, Colombia, Peru, and the Dominican Republic. He is LatinFinance's Central
Bank Governor of the Year.
Inflation control
For many analysts, Mexico's standout achievement is its record on inflation over the last 12
months. The headline rate declined from 4.1% in July 2014 to 2.9% in June 2015, putting it below
the central bank's 3% target - one of a small number of LatAm economies to claim that honor.
In fact, taking the figure to two decimal places, the rate eased slightly from May's 2.88% to
2.87% in June, the lowest level on record. "We were very pleased that inflation is under 3%
and our central scenario is that it will continue to be like that for the rest of the year," Carstens
tells LatinFinance.
"Something that has been positive is the persistence of the central bank in enforcing its
inflation objective. Monetary policy has given a handle for financial market expectations to be
anchored to."
Raúl Martínez-Ostos, country head for Mexico at Barclays, says Banxico had built up a level
of credibility that helped reinforce expectations of continued low inflation among wage setters and other key players in the economy.
"Knowing that inflation is managed whether it is core or underlying inflation means they
are both at levels that people perceive as sustainable," Martínez-Ostos says. "Market players
clearly believe they have a central bank that's consistent and credible and that allows them to
110 L ATINFINA NCE.COM - September/October 2015
plan ahead because they know where monetary policy is going."
Banxico is also seen as a good communicator. "The key has been to have a very open
communication policy," says Carstens pointing to its publication of the minutes of its
monetary policy committee (MPC) that reveal
divergent views among its members. "The
fact that these have been made public has enhanced the understanding of markets. Being
explicit about the discussions and the concerns that we have has been of the essence."
Martínez-Ostos at Barclays agrees, saying
the way the central bank communicated
with markets was central to its success in
bringing down inflation expectations. "I
think the communication from the central
bank and the minutes [of their meetings]
have ensured market players such as consumers and people who play a role in the
defining of prices have understood the
messages."
Slow economic growth in early 2014
prompted the bank to cut the policy rate
from 3.5% to 3%. Rates have been left unchanged since then.
Carstens said the MPC wanted to make
clear that one cut was "as much as we could
afford."
"It was important to communicate that to
the market so there could be no unjustified
expectations of further cuts," Carstens says.
"The central bank made clear in its communiqué that this was a single cut, and that
it was not planning to alter the policy rate in
the foreseeable future," says Rafael Amiel,
regional managing director of Latin America
and the Caribbean at IHS Economics &
Country Risk.
Erring towards prudence
Edward Glossop, Latin American economist
at Capital Economics, says there was a window earlier in the year when policymakers
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Table of Contents for the Digital Edition of LatinFinance - September/October 2015
Contents
LatinFinance - September/October 2015 - Cover1
LatinFinance - September/October 2015 - Cover2
LatinFinance - September/October 2015 - Contents
LatinFinance - September/October 2015 - 2
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LatinFinance - September/October 2015 - 32A
LatinFinance - September/October 2015 - 32B
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LatinFinance - September/October 2015 - G1
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