Monday , August 2 2021

This is an alternative that Bankico can use to control inflation



Bank of Mexico uses the reference interest rate as instrument for controlling inflationHowever, according to experts, there is another mechanism that could be used to achieve its goal of inflating inflation to the 3% target: limit the amount of cash.

According to Alfredo Coutinho, Director of Latin America, Moody's Analitics, Inflation shows resistance to descend, because the economy is facing a surplus of money, and if the amount of money is not limited, a further increase in the reference rate is required.

"Inflation has a monetary component, so the central bank needs to adjust the amount of money. The actual amount of money per unit of production showed an increase throughout the year, in the situation of the poor response of the product, the surplus of money places accommodation in higher imports and higher inflation, "the economist said.

The Bank of Mexico only controls the nominal money supply, but not the actual amount, so it takes a bit of time to find the balance between the nominal aggregate and the desired actual quantity.

Miguel Gonzalez, coordinator of UNAM's Financial Studies and Public Finance Center, pointed out that in the case of Mexico, the financial system does not serve as the perfect transmitter of monetary policy, given the One of the big problems in the country is the failure of the market, which results in an inefficient banking system.

"It can reduce the amount of money (money supply) in circulation through the open market operations (Monetary Regulation Bonds), which would be more effective than the interest rate, "Gonzalez said.

But he warned it with an increase in revenue or a drop in money The economy has been slowed down, which in political times could lead to a recession.

Raimundo Tenorio, director of economics at Tecnologico de Monterrei, pointed out that the historic entry of remittances requires the primary money issue, which turns into private consumption in the market.

Also, public funding has not been stopped, and the government is ready to pay higher rates for Cetes in order to have spending money.

Damian Valenzuela, director of investment firm Latin America Invest, said that Bankico, as an agent on the market, has a tool, but will not use it. "Although one of the goals is to take care of the value of the peso, that monetary mass is regulated by political sensitivity, it is considered not the time to create the expectation of a cycle change," he said.

He also agrees that any movement in a monetary mass that implies a limitation slows down the economy and is not the time to do so.


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