banco de méxico prospects

*/ The opinions and views expressed herein are the sole responsibility of the author and do not necessarily represent the institutional stance of Banco de México or of its Governing Board.

April 6, 2021

Banco de México Prospects

ITAÚ Spring Meetings Alejandro Díaz de León Carrillo, Governor, Banco de México*

1

2

3

4

Outline

5

Inflation

Monetary policy

Current situation of the Mexican economy

External conditions

Forecasts and final remarks

1Banco de México Prospects

2

1/ Data as of April 5, 2021. Source: World Health Organization.2/ Data as of April 4, 2021. Source: Health Ministry of Mexico.

Health Dimension Economic Dimension

Advanced 1/ Emerging 1/ Mexico 2/ Financial shock Supply shock Demand shock

Cumulative cases

60,706,574 70,314,393 2,250,458

• Increased global risk aversion.

• Capital outflows.• Exchange rate

depreciation. • Interest rate increase.• Increased sovereign risk.

• Suspension of productive activities.

• Impact:‒ Global value chains.‒ In-person services.

• Lower household and business income.

• Recomposition of household expenditure.Cumulative

deaths1,241,743 1,608,778 204,107


The COVID-19 pandemic implied shocks that affected countries in a generalized manner,with a high human cost and with repercussions on economic activity, inflation and globalfinancial conditions.

World Economy


Forecasts by multilateral organizations anticipate a recovery in 2021 greater than that expected inJanuary thanks to advances in the vaccination process and to the large fiscal stimulus programsimplemented.

Source: International Monetary Fund (IMF), World Economic Outlook October January and April 2021.

GDP Growth ForecastAnnual % change

• Economic activity and labor markets continued torecover during 4Q-2020, although at a moremoderate pace and with greater differencesbetween economies and sectors.

• This reflected, among other factors:

The lockdown measures in response to therebound in COVID-19 cases,

The economic policy measures adopted,

Differences in the sectoral structure ofeconomies.

2020 2021 2022 2021 2022

World -3.3 6.0 4.4 0.5 0.2

Advanced -4.7 5.1 3.6 0.8 0.5

United States -3.5 6.4 3.5 1.3 1.0

Euro area -6.6 4.4 3.8 0.2 0.2

Japan -4.8 3.3 2.5 0.2 0.1

United Kingdom -9.9 5.3 5.1 0.8 0.1

Emerging -2.2 6.7 5.0 0.4 0.0

Excl. China -4.3 5.9 4.7 0.5 0.0

Mexico -8.2 5.0 3.0 0.7 0.5

China 2.3 8.4 5.6 0.3 0.0

India -8.0 12.5 6.9 1.0 0.1

Brazil -4.1 3.7 2.6 0.1 0.0

WEO Update Change from

April 2021 January 2021

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Jan

-20

Jul-

20

Jan

-21-1

0

1

2

3

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

Headline Inflation

1/ Refers to the Personal Consumption Expenditure Price Index(PCE). 2/ Excludes fresh food and the direct effect of the taxincrease on consumption and the free-day care and preschoolprograms.Source: BEA, Eurostat and Bank of Japan.

-1

0

1

2

3

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

Euro area Japan 4/

United States 3/

Core Inflation

Euro area

Japan 2/

United States 1/

3/ Refers to the Personal Consumption Expenditure Price Index(PCE). 4/ Excludes energy and fresh food and the direct effect ofthe tax increase on consumption and the free-day care andpreschool programs.Source: BEA, Eurostat and Bank of Japan.

February

Headline Inflation Expectations 5 years/5 years

Source: JP Morgan.

Euro area

Japan

United StatesApril

Advanced Economies Annual % change


Inflation in advanced economies increased recently, although it remains below the targets of theircentral banks and inflation expectations have been revised upwards in some countries mainly due toa greater fiscal stimulus and the expectation of a more vigorous economic recovery.

FebruaryMarch

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22 -1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

0%

20%

40%

60%

80%

100%

120%

140%

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

Reference Rates and Implied Trajectories in OIS Curves1/

%

Balance Sheet of the Main Central Banks% of GDP

1/ OIS: Fixed-for-floating swap where the fixed interest rate is the overnighteffective reference rate. 2/ Data for the observed federal funds rate corresponds tothe average between the lower and upper bounds of the target range (0.0% - 0.25%).Source: Prepared by Banco de México with data from Bloomberg.

Source: Bloomberg. Source: Bloomberg.

Advanced Economies

End2021

US Federal Reserve2/

Bank of Japan

European Central Bank

Apr 05, 2021Nov 25, 2020

Implied target rate in OIS curve:Forecasts

End2022

January 20: Human-to-humantransmission of COVID-19 is confirmed

US Federal Reserve

Bank of Japan

European Central Bank

10-year Government Bonds Interest Rates

%

United States

Japan

Euro area

AprilMarch


Central banks in advanced economies underlined their commitment to maintaining accommodativemonetary policy stances. US medium- and long-term interest rates increased in response to the largefiscal stimulus package approved in the United States and expectations of higher economic growth.

6

Commodity Prices Index 2014 = 100

Selected Metal PricesIndex Jan-01-2018=100

1/ Includes precious metals, food and Beverages and industrial inputs price indices. 2/ Includescrude oil (petroleum), natural gas, coal price and propane indices.Source: International Monetary Fund.

3/ This index follows the prices of aluminum, copper, nickel, zinc and lead.Source: Bloomberg.


International commodity prices have increased due to expectations of a global economic recovery.

0

20

40

60

80

100

120

140

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

Total

Energy 2/

Non-Energy 1/

February 60

80

100

120

140

160

180

200

220

240

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Jan

-20

Jul-

20

Jan

-21

AprilIndustrial metals3/

Iron

Nickel

Aluminum

Copper

Gold

98.6

98.9

99.2

99.5

99.8

100.1

100.4

100.7

Jan

-19

Jul-

19

Jan

-20

Jul-

20

Jan

-21

-5

-4

-3

-2

-1

0

1

2

3

4

5

Jan

-19

Jul-

19

Jan

-20

Jul-

20

Jan

-21

Higherrisk appetite

April

Global Risk Appetite IndexIndex

Note: The risk appetite index compares several financial assets, taking into accountthat in periods of high appetite for riskier assets these tend to register high returns,while safe assets, such as government bonds of the United States, the euro area andJapan, tend to present negative returns. On the other hand, during periods of lowrisk appetite, the opposite occurs. In this context, the index value refers to thecoefficient of a regression of the daily yield of 64 assets based on their volatility.Source: Credit Suisse.

Stock Markets of Advanced andEmerging Economies

Index 01-Jan-2019=100

70

80

90

100

110

120

130

140

150

160

Jan

-19

Jul-

19

Jan

-20

Jul-

20

Jan

-21

Advanced 1/

Emerging 2/

April

Source: Goldman Sachs.

Global Financial Conditions IndexIndex

AprilTightening


During Q4-2020 and the beginning of 2021, the international financial markets registered a positivebehavior. Nonetheless, in the last weeks there have been episodes of volatility due to the increase inlong-term interest rates in the United States, derived from the expectation of a large fiscal stimulusand higher economic growth.

Note: The MSCI indices of both advanced (MSCI World Index) and emerging (MSCIEmerging Market Index) economies are presented.1/ It includes Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, HongKong, Ireland, Israel, Italy, Japan, Holland, New Zealand, Norway, Portugal, Singapore,Sweden, Switzerland, the United Kingdom and the United States. 2/ It includes Mexico,Brazil, Chile, China, Colombia, Peru, the Czech Republic, Egypt, Greece, Hungary, India,Indonesia, South Korea, Malaysia, the Philippines, Poland, Qatar, Russia, South Africa,Taiwan, Thailand, Turkey and the United Arab Emirates. Source: Bloomberg.

8

80

90

100

110

120

130

140

150

160

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

No

v-2

0

Jan

-21

Mar

-21

Nominal Exchange Rate against USD Index Jan-01-2020=100

Depreciation

Chile

Colombia

Mexico

South Africa

April

Peru

Source: Bloomberg.

Accumulated Capital Flows 1/

Billion dollars

1/ The sample covers funds used for the buying-selling of stocks andbonds from emerging countries, recorded in advanced countries.Flows exclude portfolio performance and exchange rate fluctuations.Source: Emerging Portfolio Fund Research.

-100

-50

0

50

100

150

200

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52Weeks

2020

2019

2018

2017

March 31, 2021

0

2

4

6

8

10

12

14

Jan

-20

Mar

-20

May

-20

Jul-

20

Sep

-20

No

v-2

0

Jan

-21

Mar

-21

Brazil

Mexico

Colombia

April

10-year Government Bonds Nominal Interest Rates

%

Source: Prepared by Banco de México with Bloomberg and ProveedorIntegral de Precios (PiP) data.

Brazil South Africa

Chile

Peru

Emerging Economies


Although net capital flows to emerging economies have increased, this is mainly the result of thebehavior of those directed into China (65.6% of net flows of the last 18 months). Financial markets inemerging economies exhibited a positive performance at the end of 2020 and the start of 2021.However, more recently they have shown volatility.

Excluding China

1

2

3

4

5

Outline

Inflation

Monetary policy


External conditions



0.6

40

.84

0.6

10

.85

0.2

8-0

.65

0.9

70

.59

0.6

91

.23

0.3

51

.09

0.5

61

.17

1.2

1-0

.22

0.5

70

.41

0.9

81

.12

0.4

70

.40

-0.4

11

.33

1.1

60

.12

0.2

1-0

.29

0.3

10

.04

-0.0

4-1

.12

-1.0

5-1

6.8

21

2.4

0

3.2

6

-25

-20

-15

-10

-5

0

5

10

15

70

75

80

85

90

95

100

105

110

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

65

70

75

80

85

90

95

100

105

110

115

120

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

The economic recovery continued into Q4-2020, although at a more moderate pace and a slightweakening at the end of the year. This slowdown continued in the first months of 2021 due to theevolution of the pandemic and some input shortages in the manufacturing sector.

Global Index of Economic ActivityIndex Jan-2020=100, s. a.

s. a./ Seasonally adjusted figures.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.

s. a./ Seasonally adjusted figures.Note: The sum of the components may not add up due to rounding.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.

Gross Domestic ProductQuarterly % change and index Q4-2019=100, s. a.

Q4-2020

Total

Agricultural andlivestock products

(3.2%)

Industrial (34.2%)Services

(62.7%)

Levels

Quarterly change

January

Banco de México Prospects 10

20

30

40

50

60

70

80

90

100

110

20

13

20

13

20

13

20

14

20

14

20

15

20

15

20

15

20

16

20

16

20

17

20

17

20

18

20

18

20

18

20

19

20

19

20

20

20

20

20

20

11

Industrial activity has posted 8 monthly increases by January 2021, although it has decelerated.Services continued to recover, although at a moderate and heterogeneous pace across subsectors.

60

70

80

90

100

110

120

130

140

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

Industrial ActivityIndex Jan-2020=100, s. a.

IGAE ServicesIndex Jan-2020=100, s. a.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in 2013.Source: Monthly Indicator of Industrial Activity, Mexico’s National AccountsSystem (SCNM, for its acronym in Spanish), INEGI.

s. a. / Seasonally adjusted figures. Note: Figures in parentheses represent their share in 2013 and sum of thesemay not add up due to rounding. 1/ Includes both wholesale and retail trade. 2/ Includes Arts, entertainment,and recreation. 3/ Refers to management of companies and Enterprises.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.


Mining (22.3%)

Manufacturing (49.7%)

Construction(23.3%)

Utilities (4.7%)

Total

January

Trade 1/

(28.8%)

Transportation, Information and entertainment 2/

(17.8%)

Finance, real estate, professional and management 3/

(32.7%)Educational, health care

and public administration(17.0%)

January

IGAE Services

Accommodation andfood services

(3.6%)

80

85

90

95

100

105

20

17

20

18

20

19

20

20

12

Economic sectors and regions continue to perform heterogeneously, with primary activities and industrialproduction showing a more dynamic rebound, while the tertiary sector is recovering more slowly and withmixed results among its components. Exports have been the main driver of the recovery.

GDP and Contribution to Annual Growth%, s. a.

s. a. / Seasonally adjusted figures.Source: Prepared by Banco de México based on the series adjustedfor seasonality of the national Gross Domestic Product and theIGAE, INEGI.

s. a. / Seasonally adjusted figures.Source: Mexico’s National Accounts System (SCNM, for its acronymin Spanish), INEGI.


-24

-20

-16

-12

-8

-4

0

4

8

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Q4-2020

Private consumption

Private investment

External sector

Public consumption

Public investment

Variation in stock

GDPStatistical difference

s. a. / Seasonally adjusted figures.1/ Obtained as the index in each month over its average during theperiod Dec-2019 to Feb-2020, multiplied 100.Source: Prepared by Banco de México with data from ENEC, INEGI.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

Jun

-20

Jul-

20

Au

g-2

0

Sep

-20

Oct

-20

No

v-2

0

Dec

-20

Jan

-21

Sectors that have recovered their pre-pandemic level.

Sectors less than 5% below their pre-pandemic level.

Sectors more than 5% below their pre-pandemic level.

Sectoral Activity According to its Relation to the Period

Dec/2019 - Feb/2020 1/

%, s. a.

South

Central

North-CentralNorth

Forecasts

Q4-2020

Q3-2020

Quarterly Indicator of Regional Economic Activity

Index Q1-2020=100, s. a.

40

60

80

100

120

140

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

13

Private consumption continued to recover gradually in Q4-2020 , although at a more moderate pacethan in the previous quarter. During the same period, gross fixed investment continued to recover at aslow pace, although it remains significantly below the levels reported in the first months of the year.

60

70

80

90

100

110

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

Total Private Consumption andComponents

Index Jan-2020=100, s. a.

Investment and its ComponentsIndex Jan-2020=100, s. a.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in 2013.Source: Mexico’s National Accounts System (SCNM, for its acronym in Spanish), INEGI


December

Imported goods (10%)

Domestic services (45%)

Domestic goods (45%)Total

Domestic machineryand equipment

(15.4%)

Total

Construction (61.4%)

Imported machineryand equipment

(23.2%)

December

60

70

80

90

100

110

120

130

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

Exports of goods continued to show dynamism in Q4-2020, reaching levels higher than thoseobserved prior to the pandemic, although a slowdown was observed at the beginning of 2021.

40

50

60

70

80

90

100

110

120

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

0

20

40

60

80

100

120

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

By DestinationIndex Jan-2020=100, s. a.

Capital Goods and Non-Oil Imports 1/

Index Jan-2020=100, s. a.

s. a. / Seasonally adjusted figures.Note: Figures in parentheses represent their share in total in Jan-2020.Source: Prepared by Banco de México with data from PMI Comercio Internacional, S.A. de C.V., SAT, SE, Banco de México, INEGI. Commercial Balance of Goods of Mexico. SNIEG.Information of National Interest.

s. a. / Seasonally adjusted figures.1/ Figures in current US dollars.Source: Prepared by Banco de México with data from PMI Comercio Internacional,S.A. de C.V., SAT, SE, Banco de México and INEGI. Commercial Balance of Goods ofMexico. SNIEG. Information of National Interest.

Total Manufacturing Exports

Automotive (36.6%)

Non-automotive (63.4%)

February

Total

February

Total

United States (82.5%)

Rest of the world (17.5%)

February

101.0100.6

98.791.9

105.4100.6

Automotive and Non-automotiveIndex Jan-2020=100, s. a.


Non-oil imports

Imports of capital goods

100.90100.82


-12

-8

-4

0

4

8

12

16

20

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

20

19

20

20

-8

-6

-4

-2

0

2

4

6

8

10

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

20

19

20

20

Non-oil

Oil

Total

Q4-2020

Remittances

Non-oil products

Primary income 2/

Services

Oil products

Other 1/

Current account

• 1/ Corresponds to the aggregation of the balance of other components of secondary income (other than remittances)and the balance of goods acquired in ports by means of transport. 2 / The primary income account includes creditsand debits for profits and dividends, other interests and an item line of (for example, income from cross-border

workers and other types of income) Source: Banco de México and INEGI.

During the second half of 2020, exports recovered faster than imports. For 2020 as a whole, acurrent account surplus of 2.4% of GDP was observed, the highest surplus figure recorded since1983.

Trade BalanceUSD billion

Current Account Components, Balances

% of GDP

Source: SAT, SE, Banco de México, INEGI. Mexico’s Merchandise Trade Balance. SNIEG. Information ofnational interest.


2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

20

06

20

06

20

07

20

08

20

09

20

10

20

11

20

11

20

12

20

13

20

14

20

15

20

16

20

16

20

17

20

18

20

19

20

20

20

21

23.9 24.3 24.722.6

21.0

22.7 22.4 22.6 23.1 23.3 23.1 23.3 23.023.6

31.1 31.0 31.0

20.7

22.6

25.6

27.3 27.8 28.1

29.7 29.8 29.528.9

29.4

0

5

10

15

20

25

30

35

2019 Qrt. I Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

National and Urban Unemployment Rates

%, s. a.

Employed Population by Condition of Occupation 1/

Million people

February

Urban unemployment rate

National unemployment rate

4.49

5.55

February

FormalInformal

2020 20211/ The April-June 2020 figures are those released in the Telephone Survey of Occupation and Unemployment (ETOE,for its acronym in Spanish) and the figures from July onwards correspond to the New Edition of the National Surveyof Occupation and Unemployment (ENOEN, for its acronym in Spanish). Source: Prepared by Banco de México withdata from INEGI (ENOE, ETOE and ENOEN)

Between February and April 2020, the employed population decreased by 12.5 million; by February 20219.7 million of those jobs had been regained. Although the national unemployment rate continued todecrease, there is still a high level of urban unemployment. The reactivation of the labor market has lostdynamism in recent months.

s. a. / Seasonally adjusted figuresSource: Prepared by Banco de México with data from INEGI(SCNM, ENOE, ETOE and ENOEN).

-8

-6

-4

-2

0

2

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

-1.91

-1.42

Regarding the economy’s cyclical position, slack conditions continued to narrow in Q4-2020,although they are still significantly ample.

0

5

10

15

20

25

30

35

40

-28

-24

-20

-16

-12

-8

-4

0

4

8

12

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

Output Gap Estimate 1/

% of potential output, s. a.Monthly Slack Indicators: First Principal Component

by Group of Indicators 3/

%

3/ Main Indicators constructed using CCM methodology; see Banco de México (2018), “Quarterly Report,October December 2017”, p.47. Monthly slack indicators are constructed with the main component of a set ofseries which includes 11 indicators. Slack indicators of consumption, labor market and demand conditions in the lendingmarket are based on the first main component of sets of series which includes 6, 3 and 6 indicators, respectively.Source: Prepared by Banco de México with data from INEGI and Banco de México.

Q4-2020January December

IGAE

GDP

95% confidence interval 2/

Monthly indicator

Consumption Labor market

Demand conditions in the lending market

s. a. / Seasonally adjusted data.1/ Output gap estimated with a tail-corrected Hodrick-Prescott filter; see “Inflation Report April – June2009”, Banco de México, p. 74.2/ Output gap confidence interval calculated with a method of unobserved components.Source: Prepared by Banco de México with data from INEGI and Banco de México.

-1.84

-2.03


1

2

3

4

5

Outline

Inflation

Monetary policy


External conditions



-1

0

1

2

3

4

5

6

7

8

201

5

201

6

201

7

201

8

201

9

202

0

202

1

Headline

-3

-1

1

3

5

7

9

11

13

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

Consumer Price Index

1/ Since 2003, a permanent inflation target of 3%, with a variability interval of +/-1%, was established for headline inflation.Source: Banco de México and INEGI.

F1 March

Headline

Non-core

Variability interval

Core

Annual Incidences 2/

Percentage points

2/ The sum of inflation’s components may not add up due to rounding.Source: Prepared by Banco de México with data from INEGI.

Annual % change 1/

Services

Merchandise

Non-core

4.09

4.194.12

1.05

0.80

2.26

4.12

F1 March

The COVID-19 pandemic has entailed shocks with a differentiated effects on prices, which haveexerted pressure on goods’ prices and reduced services inflation. In contrast to other countries,headline and core inflations have remained above target for 10 months. In 2021, upward pressureshave dominated and during F1-March 2021, annual headline inflation rebounded to 4.12% and coreinflation to 4.09%.


Core inflation has registered a significant change in relative prices, with increases in goods inflationand a reduction on services inflation. In F1-March, annual core inflation reached 4.09%, pressured byhigher levels of non-food merchandise inflation.

Core Price SubindexAnnual % change

MerchandiseAnnual % change

ServicesAnnual % change

Source: Banco de México and INEGI. Source: Banco de México and INEGI. Source: Banco de México and INEGI.

Core Price Subindex

0

1

2

3

4

5

6

7

8

20

16

20

17

20

18

20

19

20

20

20

21

0

1

2

3

4

5

6

7

8

20

16

20

17

20

18

20

19

20

20

20

21

Total

Foods, beveragesand tobacco

Othermerchandise

F1 March F1 March

Services

Merchandise

Core

0

1

2

3

4

5

6

7

8

20

16

20

17

20

18

20

19

20

20

20

21

Education

Housing

Other services

Total

F1 March


-9

-6

-3

0

3

6

9

12

15

20

16

20

17

20

18

20

19

20

20

20

21

-30

-20

-10

0

10

20

30

40

50

20

16

20

17

20

18

20

19

20

20

20

21

Non-core inflation decreased between Q3-2020 and Q4-2020 due to lower annual changes in energyprices, as well as to a decline in fruits and vegetables inflation. Nonetheless, in F1-March 2021, itreached 4.19% pressured by international energy prices.

-15

-10

-5

0

5

10

15

20

25

30

20

16

20

17

20

18

20

19

20

20

20

21

Agricultural and Livestock ProductsAnnual % change

1/In certain cases, the sum of inflation’s components may not add up dueto rounding. 2/ Includes LP gas and natural gas.Source: Calculated by Banco de México with data from INEGI.

Source: Banco de México and INEGI. Source: Banco de México and INEGI.

Total

Fruits and vegetables

F1 March

LP gas

Naturalgas

Gasoline

Energyproducts

F1 March

Selected Energy Price IndexesAnnual % change

Annual Incidences 1/

Percentage pointsF1 March

Livestock products

Non-core Price Subindex

Agricultural andlivestock products

Domestic gas 2/

Gasoline

Electricity

Governmentauthorized

prices

Non-core

4.19

0.390.03

0.34

0.07

2.73


1

2

3

4

Outline

5

Inflation

Monetary policy


External conditions



-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

20

15

20

16

20

17

20

18

20

19

20

20

20

21

1/The data shown up to January 20, 2008 corresponds to the overnight interbank interest rate (policy rate).Source: Prepared by Banco de México with INEGI data.

In its February 2021 decision, Banco de México’s Governing Board lowered the target by 25 basispoints to 4%, and in March the target was left unchanged.

2

3

4

5

6

7

8

9

10

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

Target for the Overnight Interbank Interest Rate and Headline Inflation 1/

%, annual % change

Target for the overnightinterbank interest rate

(policy rate)

April

Headline inflation

F1 March

Headline Inflation target

Short-term Ex-Ante Real Rate and Estimated Range for the Short-term Neutral Real Rate in the

Long Term 2/

%April

2/ The short-term ex-ante real rate is constructed using the Target for the OvernightInterbank Interest Rate and 12-month inflation expectations from Banco de México’sSurvey. The dotted line corresponds to the midpoint of the range for the short-termneutral real rate in the long term, which is now between 1.8 and 3.4%. Source: Bancode México.

Short-term ex-ante real rate

Short-term neutral real raterange in the long term


3

4

5

6

7

8

9

10

1D

3M

6M 1A

2A

3A

5A

10

A

20

A

30

A

24

Since April 2020 and until F1-February, interest rates followed a downward trend. However, on theback of sharp increases in medium and long-term US interest rates, local interest rates have beenpressured through the yield curve.

3

4

5

6

7

8

9

10

Jan

-19

Ap

r-1

9

Jul-

19

Oct

-19

Jan

-20

Ap

r-2

0

Jul-

20

Oct

-20

Jan

-21

Ap

r-2

1

Government Bond Interest Rates In Mexico

%

Yield Curve of Mexico%

Source: Proveedor Integral de Precios (PiP).Note: The gray lines refer to the daily yield curves since March 30,2020.Source: Proveedor Integral de Precios (PiP).

1/ Refers to 5-year Credit Default Swaps (CDS).2/ The variation in the FX corresponds to the percentage change of the FXindex, where 100= 01-01-21.Source: Prepared by Banco de México with Bloomberg data and ProveedorIntegral de Precios (PiP).


April1 day

10 years

30 years

3 years

Apr-05-21

Mar-24-20

Sep-30-20

Dec-31-20

Variation in Selected Variables from Nov-30-20 to Apr-05-21

Mexico 49.0

Colombia 72.0

South Africa 89.0

Brazil 175.9

Peru 30.4

Chile 8.3

Tailand -6.8 66.6 79.2 2.0 3.8

103.0 - 17.4 3.5

54.9 78.1 7.4 -6.9

56.4 26.1 2.9 -5.8

146.9 - 126.0 5.3

104.7 91.6 19.7 0.3

141.0 100.9 39.9 2.9

Emerging

Markets

Economies

Government Bonds

Interest Rates

(basis points)

CDS 1/

(basis

points)

FX 2/

%

2 Y 10 Y 30 Y

1

2

3

4

5

Outline

Inflation

Monetary policy


External conditions



Scenario for the Trajectory of GDP1/

Percentage growth rates

Economic Activity and Inflation Outlook


2/ Forecast since February 2021. 3/ Forecast since November 2020.Source: Banco de México and INEGI.

Annual Headline Inflation%

Annual Core Inflation%

1/ For more details about the central baseline scenarios and trajectories, see the October –December 2020 Quarterly Report, Banco de México, pages 101-102.

2021 2022

Central Scenario 4.8 3.3

Lower Limit Trajectory 2.8 3.0

Upper Limit Trajectory 6.7 3.4

Report

Quarterly Report

October-

December 2020

Report Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

October-December 2020 2/ 3.9 3.5 3.8 4.5 3.2 3.6 3.1 3.0 3.2 3.0

July-September 2020 3/ 3.9 3.6 3.6 4.3 3.1 3.3 3.2 3.1 3.1

2020 2021 2022

Report Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

October-December 2020 2/ 3.9 3.8 3.9 3.6 3.0 3.1 3.0 3.0 3.0 3.0

July-September 2020 3/ 3.9 3.8 3.9 3.6 3.0 3.1 2.9 2.9 2.9

2020 2021 2022

Final Remarks

In a highly uncertain environment, the risks for inflation, economic activity and financialmarkets pose major challenges for monetary policy.

It is necessary to enable an orderly adjustment of financial conditions and a change in relativeprices, without affecting price formation and inflation expectations.

The Governing Board will take the necessary actions based on incoming information in order forthe policy rate to be consistent with the orderly and sustained convergence of headline inflationto the 3% target within the time frame in which monetary policy operates.

It is necessary to safeguard the institutional framework, strengthen the macroeconomicfundamentals and adopt the necessary actions on both monetary and fiscal policy fronts, toenable a better adjustment of domestic financial markets and of the economy as a whole.


banco de méxico prospects

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