Interview : Alejandro Díaz de León Carrillo
What are the external pressures on the local economy, and how are Banco de México’s policies effective in managing such risks?
ALEJANDRO DÍAZ DE LEÓN: For the financial sector and the whole country it is fundamental to have a solid, resilient banking system that is resistant to volatility. In the last few years, financing of businesses and homes has increased faster than economic growth; this has given strong financial stability and solvency to the economy.
Mexico has faced a complicated macroeconomic outlook since mid-2016, characterised by volatility and other geopolitical risks. In particular, there have been three key challenges for Mexico: the fall in the price of commodities, the rise of interest rates in overseas markets, and the revision of the regional economic integration of North America and the subsequent global turmoil over tariffs. These elements have created various pressures on the economy, with 2017 being a tough year for inflation, dually influenced by a sliding exchange rate against the dollar and the rise in fuel prices. However, over the first half of 2018 inflation has started to fall marginally.
Over the last three years we have seen a decrease in foreign capital inflows to around 2% of GDP, and this fall in financial resources goes hand in hand with the adjustment of the exchange rate, seeing as the peso is the second-most liquid currency in emerging markets. The hedging mechanism that Banco de Mé xico introduced at the start of 2017 is an instrument to inject liquidity into the exchange market. It has to be unanimously voted upon by the bank’s exchange commission when it is identified that liquidity levels are strained. Given market conditions, it generally works well as a stabilising mechanism if it is not overused.
How can financial inclusion be enhanced for individuals and small businesses?
DÍAZ DE LEÓN: First, it should be noted that although interest rates have increased in the short term, over the medium to long term they remain relatively unchanged for the end consumer. In particular, longerterm credits such as mortgages have seen very marginal changes. However, we should not look at the rate increases in late 2017 and early 2018 as isolated, one-off events. Interest rate increases act as a tool that ensures the economy can adjust in a structured way to a period of internal or external uncertainty.
In terms of inclusion, our essential role as the central bank is to ensure that credit is provided to companies and families who need it the most. The new Law to Regulate Financial Technology Institutions will allow us to apply innovative IT to the financial sector, and allow us to close the access gap between financial services and the groups that are not adequately attended to.
In a world displaying greater protectionist behaviours, what are the advantages of the open trade policy implemented by Mexico?
DÍAZ DE LEÓN: For over two decades, Mexico has taken a decidedly open strategy towards its position in the global economy, both in terms of trade and capital flows. This openness has served the economy well, and consumers have been able to benefit from globalised trade. Productivity has also increased in the manufacturing sector, with processes becoming more sophisticated in adding value to products. Manufacturing is now one of the most dynamic sectors alongside other export-orientated sectors, such as agriculture.
The trend of trade liberalisation has also benefitted the global economy in general, as each country has been allowed to showcase its goods, services and local competitive advantages to provide better and cheaper products for all consumers worldwide. For Mexico in particular, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the renewed EU agreement reflect important steps in our strategy to diversify trade markets and widen our participation in a greater number of global supply chains.
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