challenges for monetary policy implementation in … for monetary policy implementation in mexico...
TRANSCRIPT
Challenges for Monetary Policy Implementation in Mexico
April, 2017
Agustín Carstens
1
Introduction During the last several years, the discussion about monetary policy has been monopolized
by advanced economies’ unconventional monetary policy actions.
Some debate has arisen in the context of emerging markets economies. In particular, inthose that are subject to a floating exchange rate (ER) regime and whose monetary policy isconducted under an inflation targeting (IT) scheme.
Expected results under this framework:
With a floating ER regime, real exchange rate flexibility would be an efficient shock absorberwhen there is a consistent macroeconomic framework.
A credible IT scheme should provide assurance of appropriate monetary policy.
From the above, it follows that central banks should not react to ER dynamics. Otherwise,the integrity of the flexible exchange rate regime would be compromised.
If it reacts, it is an ER targeter!.Mexico’s experience: during the last years monetary policy has been reacting to ERdevelopments to the extent that they could de-anchor inflation expectations, so it is myconviction that this has not converted us into an ER targeter.
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11
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12
20
13
20
14
20
15
20
16
20
17
Monetary Policy Rate and Inflation%
1/ Before January 20, 2008 it refers to the observed Overnight Interbank Interest Rate.Source: INEGI and Banco de México.
2
Monetary Policy Reference Rate 1/
April
Headline Inflation
March
Perc
ent
Headline Inflation Target
3
Consumer Price Index Annual incidences in percentage points 1/
Nominal Exchange 2/
Pesos per USD
1/ Incidence refers to the contribution of each component of the CPI on percentage points to thegeneral inflation. In some cases the sum of the respective components may have some discrepancydue to rounding effects. Source: Elaborated by Banco de México with data from INEGI.
2/ Refers to FIX Exchange rate.Source: Banco de México.
12
13
14
15
16
17
18
19
20
21
22
20
14
20
15
20
16
20
17
Depreciation
-1
0
1
2
3
4
5
6
7
8
20
14
20
15
20
16
20
17
Core
Gasoline
Headline
Non-core without gasoline
AprilMarch
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4
May
-14
Jun
-14
Jul-
14
Au
g-1
4
Sep
-14
Oct
-14
No
v-1
4
Dec
-14
Jan
-15
Feb
-15
Mar
-15
Ap
r-1
5
May
-15
Jun
-15
Jul-
15
Au
g-1
5
Sep
-15
Oct
-15
No
v-1
5
Dec
-15
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
Dec
-16
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
4
Inflation ExpectationsMedian, %
1/ For a description of the estimation of log-term inflation expectations, see the Box “Decomposition of Break-even Inflation” in the Quarterly Report, October – December 2013. For thecurrent Report, the estimate was updated by including data as of December 2015.Source: Banco de México and Citibanamex Survey (fortnightly periodicity).
April
2017
2018Next 3-8 years
March
Long Term (Derived from Market Instruments) 1/
Variability Interval
5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
Dec
-16
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
May
-17
Jun
-17
Jul-
17
Au
g-1
7
Sep
-17
Oct
-17
No
v-1
7
Dec
-17
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun
-18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
Dec
-18
Source: Banco de México Survey, INEGI.
Monthly Annual Inflation Expectations%
Observed Inflation
Expectation for end of 2018
3.82
October Survey 2016December Survey 2016March Survey 2017
6
Fan Chart: Output Gap% of potential output, s. a.
s. a. / Seasonally adjusted data.Source: Banco de México.
-7
-6
-5
-4
-3
-2
-1
0
1
2
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5
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-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
2018Q4
2016Q4
2017 Q4
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
15
25
35
45
55
65
75
85
95
105
115
125
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
WTI
Futures 1/
7
Crude Oil Prices USD per barrel
1/ Data up to April 18, 2017.Source: Bloomberg.
Mexican Oil Mix
31
.7
32
.3 34
.5
35
.6
32
.8
31
.5
29
.8
29
.1
33
.2 36
.2
36
.2 37
.5
37
.7 40
.4 43
.1
47
.3
50
.2
48
.0
47
.7
0
10
20
30
40
50
60
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
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20
08
20
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20
10
20
11
20
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20
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20
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20
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20
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17
20
18
8
Public Sector Primary Balance 1/
% of GDP
Public Debt 2/
% of GDP
1/ Negative (positive) data indicate a deficit (surplus). From 2000 to 2008, public expenditureincludes the physical investment of Pemex through the Pediregas scheme.Source: SHCP and Pre CGPE 2018.
2/ Refers to the Historical Balance of Public Sector Borrowing Requirements.Source: SHCP and Pre CGPE 2018.
Forecast Forecast
-10,000
-8,000
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
Total
9
Trade Balance USD millions
-4
-3
-2
-1
0
1
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Current Account% of GDP
1/ It refers to the January-February period.Source: SAT, SE, Banco de México, INEGI. Merchandise trade balance of Mexico. SNIEG.Information of National Interest.
Source: Banco de México and INEGI.
1Q-2017 1/
Oil
Non-Oil
20
16
-1Q
20
16
-2Q
20
16
-3Q
20
16
-4Q
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
No
v-1
3
Mar
-14
Jul-
14
No
v-1
4
Mar
-15
Jul-
15
No
v-1
5
Mar
-16
Jul-
16
No
v-1
6
Mar
-17
Jul-
17
No
v-1
7
Mar
-18
Jul-
18
No
v-1
8
10
Inflation and Unemployment Gaps%
Expected Federal Funds Rate Implicit in OIS Curve 1/
%
Note: The inflation gap is relative to the Federal Reserve’s objective of 2%. The unemployment gap is relative to thenatural rate of unemployment estimated by the CBO.Source: U.S. Department of Labor, Bureau of Labor Statistics; Congressional Budget Office (CBO).
1/ OIS: Fixed-For-Floating swap where the fixed interest rate is the reference rate.Note: Data for the observed federal funds rate corresponds to the average between the lower and upper bounds of therange (0.50% - 0.75%).Source: Banco de México with data from Bloomberg.
United States
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan
-11
May
-11
Sep
-11
Jan
-12
May
-12
Sep
-12
Jan
-13
May
-13
Sep
-13
Jan
-14
May
-14
Sep
-14
Jan
-15
May
-15
Sep
-15
Jan
-16
May
-16
Sep
-16
Jan
-17
Inflation Gap
Natural Rate of Unemployment Gap
March
Dec.-17 Dec.-18
Market’s Forecast
11
Monetary Policy Reference Rates for Mexico and the U.S.%
Interest Rate Differential Adjusted by Risk for the Mexican Peso and Selected Emerging Market Currencies
Index
1/ It refers to Target for the Overnight Interbank Interest Rate. Before January 20, 2008 it refers tothe observed Overnight Interbank Interest Rate.2/ The upper limit of the target range for federal funds rate is showed.Source: Federal Reserve and Banco de México.
Note: The Emerging Markets Index is calculated with Brazilian real, Chilean peso, Colombian peso,Turkish lira, South African real, Korean won and Polish zloty.Source: Bloomberg with Central Bank of Mexico calculations.
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U.S.2/
Mexico1/
April
0.15
0.20
0.25
0.30
0.35
0.40
0.45
May
16
Jun
16
Jul 1
6
Au
g 1
6
Sep
16
Oct
16
No
v 1
6
Dec
16
Jan
17
Feb
17
Mar
17
Ap
r 1
7
Emerging Markets
Mexico
April
3
4
5
6
7
8
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
Dec
-16
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
Government Bond Interest Rates%
Source: Banco de México and Proveedor Integral de Precios (PiP).
April
1 day
3 months
2 years
1 years
5 years
10 years
12
Mexico and United States Interest Rate Spreads 1/
Percent points
1/ The United States objective rate is the average of the interval considered by the FederalReserve.Source: Proveedor Integral de Precios (PiP) and U.S. Treasury Department.
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
Dec
-16
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
1 day
3 months
2 years
1 year
5 years10 years
April
13
Emerging Economies: Nominal Exchange Rate respect to US DollarIndex 01-jan-2015 = 100
Mexico: Government Securities’ Holdings by Foreign Investors
MXN billion
Source: Bloomberg.
0
400
800
1,200
1,600
2,000
2,400
20
08
20
09
20
10
20
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20
12
20
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20
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20
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20
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20
17
Bonds
CETES
Total 1/
April
1/ The total includes CETES, bonds, udibonos, bondes and bondes D.
Source: Banco de México.
90
100
110
120
130
140
150
160
Dec
-14
Feb
-15
Ap
r-1
5
Jun
-15
Au
g-1
5
Oct
-15
Dec
-15
Feb
-16
Ap
r-1
6
Jun
-16
Au
g-1
6
Oct
-16
Dec
-16
Feb
-17
Ap
r-1
7
Chile
Colombia
South Africa
Brazil
Mexico
Korea
Depreciation
April
14
Mexican Peso Exchange Rate and Market ExpectationsMexican pesos per US dollar
Source: Bloomberg and Citibanamex
16.50
17.50
18.50
19.50
20.50
21.50
22.50
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
Dec
-16
Jan
-17
Feb
-17
Mar
-17
Ap
r-1
7
Mexican Peso
Market forecast YE16
Market forecast YE17
Market forecast YE18
April
15
Expected Range for the MexicanPeso Implied in FX Options
Mexican pesos per US dollar
Note: The dotted lines represent the end of quarter.Source: Bloomberg with calculations from the Central Bank of Mexico
11
13
15
17
19
21
23
25
27
29
31
33
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
95% interval 90% interval 80% interval 70% interval 60% interval
2Q17 3Q17 4Q17
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2
Observed
Headline Inflation Target
Variability Interval
16
Fan Chart: Annual Headline Inflation 1/
Annual % variation
1/ Quarterly average of annual headline inflation.Source: Banco de México, Banxico Expectation Survey and INEGI.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
2016 Q4
2018 Q4
2017 Q4
Market Forecasts
17
Final Considerations
A key element of an IT scheme is to stabilize inflation expectations in the horizon inwhich monetary policy operates.
ER dynamics can affect inflation expectations.
Central banks that neglect ER developments could facilitate the transformation oftransitory relative prices shocks into a generalized and sustained acceleration inprices.
ER is a very important channel in the monetary policy transmission mechanism.
Therefore EM central banks cannot afford not to be vigilant of ER developments andshould be ready to adjust monetary policy as appropriate, specially when inflationexpectations are affected by ER dynamics.
