By Azania Post Reporter
THE New Central Bank governor of Mexico, Alejandro Diaz de Leon, has said his main challenge ahead is to reduce inflation to three percent from six recorded this year.
However, the governor was optimistic that inflation may not fall as forecast because of recent and future shocks, laying out a cautious stance that may bode for steady or even higher interest rates ahead.
In his first interview after being nominated to replace Agustin Carstens earlier on Tuesday, Diaz de Leon warned the inflation outlook deteriorated in recent months, citing the U.S. Federal Reserve’s monetary position and Mexico’s tight labor market.
Inflation unexpectedly rose in early November after falling from a 16-year high in August and the peso weakened sharply in October over concerns the United States could end a free trade deal with Mexico.
Diaz de Leon, 47, emphasized that monetary policy would be driven by data, saying the central bank board would focus on the most recent information, right up to the day of policy meetings, before making a decision.
“In the last months we have been quite clear to highlight that we have been facing the shocks that I have alluded to and we are still not free from potential additional shocks,” said the incoming governor, whose term begins Dec. 1.
“We cannot assume that the disinflationary path will necessarily go as expected,” he added.
The central bank holds its next monetary policy meeting Dec. 14 with a few private economists predicting a hike from the current 7 percent benchmark interest rate after several months with no changes.
“Any central bank would like to have the wisdom of an owl, rather than the other two extremes,” he said, indicating ahead of the next policy meeting that his stance would be neither dovish or hawkish.
The governor said the bank’s mandate was to fight inflation, countering some economists’ views that the former finance ministry official might be more concerned about growth.
“We believe that by achieving that mandate we have a very important contribution in fostering growth,” he said.
The central bank last week trimmed its growth forecast for 2017 to between 1.8 percent and 2.3 percent, in part due to the impact on investment from worries about the future of the North American Free Trade Agreement (NAFTA). Talks to rework the pact that underpins $1 trillion in trade have stalled.
U.S. President Donald Trump has threatened to dump NAFTA if he cannot renegotiate it in his country’s favor. Diaz de Leon said the bank was not working on the assumption the deal would fail.