Abstract
Review Under the Flexible Credit Line Arrangement-Press Release; and Staff Report
This statement provides information that has become available since the staff report was finalized. This information does not alter the thrust of the staff appraisal.
1. The central bank hiked its policy rate by 25 basis points on November 15. The policy rate was increased from 7.75 to 8 percent in a majority decision (one member of the Board voted for an increase of 50 basis points). The central bank noted in its press release that the balance of risks for inflation was biased upwards and had deteriorated significantly. The press release highlighted that the recent peso depreciation was in part affected by the announcement of the intention to cancel the new Mexico City airport project and, in general, by markets’ concerns regarding the incoming administration’s policies and some legislative initiatives. In this context, the press release also noted sizable increases in sovereign risk premia and medium- and long-term interest rates.
2. On November 12, the President-elect announced a new public consultation for November 24–25. The consultation will seek public approval for a range of proposed infrastructure investments—including the planned new refinery, the Maya Railway and the Trans-Isthmic Railroad—and new social programs. The President-elect indicated that the consultation would follow the same process as the one held last month, which led to his decision to abandon the construction of Mexico City’s new international airport.
3. On November 8, the head of the Senate proposed to eliminate bank fees including on ATM withdrawals and balance requests. However, the President-elect subsequently declared that he did not support the proposal and was not planning to change banking laws. In addition, the transition team stated in a press release that they had contacted the leaders of both parliamentary chambers to ensure that future initiatives would be coordinated with the Ministry of Finance.
4. Mexican asset prices have been under pressure in recent weeks amid uncertainty about the incoming administration’s policies. The peso depreciated by some 5 percent since October 26 as the stock market fell by 9.5 percent, and the EMBIG and 5-year CDS spreads widened by 50 and 16 basis points, respectively.
5. Headline inflation eased slightly to 4.9 percent (year-on-year) in October, down from 5.0 percent in September. Energy and housing prices rose less than in the previous month. Core inflation edged up slightly to 3.73 percent from 3.67 percent in September.