Mexico's Central Bank Eyes Uncertain Investment Climate
(Bloomberg) -- Mexico’s central bank board took aim at President Andres Manuel Lopez Obrador’s administration in its most recent meeting, saying policy uncertainty is holding back investors in Latin America’s second-largest economy.
Most members of the bank’s board “highlighted the persistence of an environment of uncertainty that has affected private investment, and which has stemmed from the public policy decisions taken by the new administration,” according to minutes from the Aug. 15 decision to cut the key interest rate. They also mentioned concerns over insecurity and corruption.
The minutes elaborated on initial comments published by the monetary authority in announcing the rate decision and which were already rebuked by the president -- Lopez Obrador said on Aug. 16 that the central bank was overreaching in its comments on the nation’s economic policy.
While the post-decision statement was more vague, only alluding to the administration’s policies, in the minutes most board members cited a perception of weak public finances. Some even warned about the weakness of investor confidence in Mexico, with one highlighting impacts from cancellation of an airport for Mexico City, suspension of private partnerships for Petroleos Mexicanos and a dispute with natural gas pipeline firms.
Policy makers were “pretty clear and direct in pointing the finger to current and prospective macro policy as a source of risk and uncertainty in the eyes of investors and of the central bank board as well,” said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc.
One board member underlined that government revenue has fallen short of expectations and that the situation could worsen in the next three years based on plans to support Pemex.
The minutes also showed that deputy governor Javier Guzman dissented from the decision to cut interest rates, voting to leave them on hold. He cited worries about persistent high core inflation, the lack of information about the government’s 2020 budget plan and the potential that the reduction would surprise investors and create a negative reaction.
Analysts in a survey published by Citigroup Inc.’s Mexico unit last week expect the five-member board to cut interest rates again in its next scheduled decision on Sept. 26.
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