quarterly report · quarterly report 2 april-june 2014 . monetary policy conduction monetary policy...

Quarterly Report

August 13, 2014

April – June 2014

1

Outline

Monetary Policy 1

Economic Activity in Mexico 3

Inflation Determinants 4

Forecasts and Balance of Risks 5

External Conditions 2

2 2 Quarterly Report April-June 2014

Monetary Policy Conduction

Monetary policy has focused on reaching an efficient convergence towards the 3 percent inflation target, i.e. at the lowest cost to economic activity.

The process of anchoring inflation expectations has been one of the key factors for this convergence.


Monetary policy

conduction

Low and stable

inflation environment

Anchoring of inflation

expectations

Monetary Policy Conduction

Inflation: developed as expected in the first half of the year, while inflation expectations for the end of 2014 and 2015 declined.

Economic activity: was less dynamic than expected in the first months of the year, resulting in a higher degree of slackness in the economy.

In this context, considering:

The Board of Governors decided in June to decrease the Overnight Interbank Interest Rate from 3.5 to 3.0 percent.

The favorable performance of inflation.

The outlook that inflation will be close to 3 percent from the beginning of 2015 onwards.

The weakness of economic activity.

4

Anchored inflation expectations.

4 Quarterly Report April-June 2014

2

3

4

5

6

7

8

9

10

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Overnight Interbank Interest Rate 1/

%

1/ Since January 21, 2008, the Overnight Interbank Interest Rate is shown. Source: Banco de México.

The Board of Governors also estimated that, considering the foreseen recovery of the economy and the monetary stance of Mexico relative to the U.S., a further reduction of the interest rate target was not recommendable.


Outline

Monetary Policy 1






External Conditions

Recovery of the world economy:

Advanced economies: the effects of a lower fiscal consolidation and a very accommodative monetary policy supported the recovery.

Emerging economies: relatively weak conditions persisted.

In general, remained at low levels.

Expectation that monetary stimulus in advanced economies prevails for a prolonged period.

In particular, the U.S. Federal Reserve reaffirmed, conditional on the performance of the economy, its expectation of a gradual normalization of its monetary policy.

Global Outlook in 2Q 2014

Growth

Inflation

Monetary Policy


World GDP Growth and Manufacturing Purchasing Managers’ Index (PMI) Quarterly % change at annual rate and diffusion index, s.a.

s.a./ Seasonally adjusted data.

Note: The sample of countries used for the calculation represents 86.1% of global GDP measured by purchasing power parity.

Source: Estimated by Banco de México with data from Haver Analytics, JPMorgan and Markit.

Growth of the world economy increased moderately during 2Q 2014, after a weaker than expected onset of the year.

8 8

GDP

Global PMI

July 2Q 2014

Quarterly Report April-June 2014

80

85

90

95

100

105

110

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Manufacturing production

Industrial production

2

3

4

5

6

7

8

9

10

11

-800

-600

-400

-200

0

200

400

600

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Change in nonfarm payrolls

Change in Nonfarm Payrolls and Unemployment Rate

Thousands of jobs and % of EAP, s.a.

EAP/ Economically Active Population. s.a./ Seasonally adjusted data. Source: Bureau of Labor Statistics.

Industrial and Manufacturing Production Index 2007=100, s.a.

s.a./ Seasonally adjusted data. Source: Federal Reserve.

In the U.S., manufacturing production presented a solid growth and labor market conditions further improved.

July

9

July

Unemployment rate


GDP Growth and Contributions of its Components as Compared with its Recent Peak

% and percentage points, s. a.

s.a./ Seasonally adjusted data. Source: Eurostat and Haver Analytics.

In the Euro zone, economic recovery remained weak and heterogeneous, with GDP still below pre-crisis levels.

s.a./ Seasonally adjusted data. Source: Eurostat.

Gross Domestic Product Index I-2008=100, s.a.

-8

-6

-4

-2

0

2

4

20

08

20

09

20

10

20

11

20

12

20

13

20

14

GDP

Private consumption

Government

Investment

Net Exports

Inventories 1Q 2014

10

90

92

94

96

98

100

102

104

106

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Euro Zone

Italy

Germany

Spain

France

1Q 2014


U.S.: Personal Consumption Expenditures Price Index

Annual % change

Euro Zone: Consumer Prices Index Annual % change

Source: Bureau of Economic Analysis. Source: Eurostat.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

20

10

20

11

20

12

20

13

20

14

Core

Headline

July

In the U.S., inflation increased, although it remains below the Federal Reserve’s 2 percent target. Meanwhile, in the Euro zone deflation risks persist.


0

0.5

1

1.5

2

2.5

3

3.5

20

10

20

11

20

12

20

13

20

14

Headline

Core

June

The U.S. Federal Reserve reaffirmed its strategy of gradually withdrawing the monetary stimulus. However, recent U.S. data have raised expectations among some market participants of an anticipated adjustment of monetary conditions in that country.

0

1

2

3

4

5

6

7

8

9

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Interest Rates of Government Securities

% Federal Funds Rate Futures

%

1/ Date prior to the publication of favorable economic activity data and the FOMC’s July statement. Source: Bloomberg.

Source: U.S. Department of the Treasury.

Federal Funds rate

2 years

10 years

August


0.0

0.5

1.0

1.5

2.0

2.5

Jun

-14

Au

g-1

4

Oct

-14

Dec

-14

Feb

-15

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

Dec

-15

Feb

-16

Ap

r-1

6

Jun

-16

Au

g-1

6

Oct

-16

Dec

-16

09-Jan-14

12-Aug-14

01-Jul-14 1/

The expectation of a prevailing accommodative monetary policy intensified the search for yield process in 2Q 2014, leading to a recovery of capital flows to emerging economies.

1/ The sample includes funds used to sell or buy equity and bonds from emerging markets registered in advanced economies. Flows exclude changes in market value of portfolios and changes in foreign exchange rates. Source: Emerging Portfolio Fund Research.

Accumulated Capital Flows to Emerging Markets (Debt and Equity) 1/

USD billion

-40

-30

-20

-10

0

10

20

30

40

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3M

ay-1

3Ju

n-1

3Ju

l-1

3A

ug-

13

Sep

-13

Oct

-13

No

v-1

3D

ec-1

3Ja

n-1

4Fe

b-1

4M

ar-1

4A

pr-

14

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Debt Equity

August


Volatility in FX Markets

% Nominal Exchange Rate against USD

Index 01-Jan-2013 = 100

1/ Simple average of the implied volatility of one month exchange rate put options for: Brazil, Chile, Korea, India, Mexico, Peru, Poland, South Africa and Turkey. 2/ JP Morgan’s FX implied volatility index for G7 countries (Canada, France, Germany, Italy, Japan, U.K. and U.S.). Source: Bloomberg.

Source: Bloomberg.

92

96

100

104

108

112

116

120

124

128

132

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3M

ay-1

3Ju

n-1

3Ju

l-1

3A

ug-

13

Sep

-13

Oct

-13

No

v-1

3D

ec-1

3Ja

n-1

4Fe

b-1

4M

ar-1

4A

pr-

14

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Korea

Chile

Colombia

2014

South Africa

Depreciation

Brazil

Peru

Mexico

Turkey

Given the aforementioned, low volatility was registered in financial markets. However, due to more favorable than expected U.S. economic data, volatility increased recently.

5

7

9

11

13

15

17

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3M

ay-1

3Ju

n-1

3Ju

l-1

3A

ug-

13

Sep

-13

Oct

-13

No

v-1

3D

ec-1

3Ja

n-1

4Fe

b-1

4M

ar-1

4A

pr-

14

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Emerging 1/

Advanced 2/

2014


50

70

90

110

130

150

170

190

210

230

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

Sep

-13

Oct

-13

No

v-1

3

Dec

-13

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Credit Default Swaps 1/

Index 01-Jan-2013=100

1/ 5-year CDS. Source: Bloomberg.

Mexico

Chile

Turkey

South Africa

Peru

Brazil

Colombia

2014

In this context, Mexico stood out for being one of the economies whose risk indicators have been less affected during recent episodes of volatility.


Outline

Monetary Policy 1






80

90

100

110

120

130

140

150

160

90

94

98

102

106

110

114

118

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Agricultural IGAE

Economic Activity Indicators Index 2008 = 100, s.a.

85

90

95

100

105

110

115

120

125

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Industrial Activity Index 2008 = 100, s.a.

s.a./ Seasonally adjusted data. Source: Mexico’s System of National Accounts (Sistema de Cuentas Nacionales), INEGI.

s.a./ Seasonally adjusted data. Source: Mexico’s System of National Accounts (Sistema de Cuentas Nacionales), INEGI.

Services IGAE

June May

Economic activity in Mexico improved during 2Q 2014, as compared to the weakness observed in the previous two quarters.

17

Total IGAE

Industrial production

Mining

Electricity

Manufactures

Construction

June


More dynamic economic activity was mainly driven by external demand.

70

85

100

115

130

145

160

175

190

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Others

Total

U.S.

Manufacturing Exports Index 2007=100, s.a.

s.a./ Seasonally adjusted data. Source: Banco de México.



Automobile

50

70

90

110

130

150

170

190

210

230

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Total

Total

Others

U.S.

70

80

90

100

110

120

130

140

150

160

170

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Non-automobile

Total

Others

U.S.

June June June


Some consumption indicators changed their trend, although some of their determinants continue showing signs of weakness.

Monthly Indicator of Private Consumption in the Domestic Market and ANTAD Total Sales

Index 2008=100, s.a.

Consumer Confidence Index Jan-2003=100, s.a.

s.a./ Seasonally adjusted data. Source: Estimated by Banco de México with data from INEGI and ANTAD.

s.a./ Seasonally adjusted data. Source: Banco de México and INEGI.

85

90

95

100

105

110

115

120

125

130

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Private consumption

ANTAD total sales

July May

70

75

80

85

90

95

100

105

110

115

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

19

July

Quarterly Report April-June 2014

Investment and its Components Index 2008=100, s.a.

Real Value of Production in Construction Index Jan-2008=100, s.a.

s.a./ Seasonally adjusted data. Source: INEGI.

s.a./ Seasonally adjusted data. Source: INEGI and seasonally adjusted by Banco de México in the case of public and private construction (private housing and private excluding housing).

40

50

60

70

80

90

100

110

120

130

140

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Public

Private excluding housing

Privada housing

Private

Total

70

80

90

100

110

120

130

140

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Total

Machinery and equipment

Construction

May

May

Gross fixed investment indicators gradually improved in 2Q 2014.


2

3

4

5

6

7

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

85

88

91

94

97

100

103

106

109

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

National Unemployment Rate % of EAP, s.a.

Total IGAE, IMSS-insured Workers and Employed

Population

Index 2012=100, s.a.

Labor Informality Rate % of employed population, s.a.

EAP/ Economically Active Population. s.a./ Seasonally adjusted. Source: National Employment Survey (Encuesta Nacional de Ocupación y Empleo), INEGI.

a.e./ Cifras con ajuste estacional. 1/ Permanent and temporary workers in urban areas.

Source: IMSS and INEGI (SCNM and ENOE). Seasonally adjusted by Banco de México except for IGAE.

s.a./ Seasonally adjusted. Source: Calculated and seasonally adjusted by Banco de México with data from the National Employment Survey (Encuesta Nacional de Ocupación y Empleo), INEGI.

June

Total IGAE

IMSS-insured workers 1/

Employed population

May July

1Q 2014

Despite the more dynamic economic activity, during 2Q 2014 slack conditions persisted in the labor market.

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

55

56

57

58

59

60

61

62

June


Although labor productivity in the manufacturing sector continued its upward trend, the one corresponding to the whole economy has remained stable in the last years.

Productivity and Unit Labor Cost in the Economy

Index 2008=100, s. a.

Total Factor Productivity and Labor Productivity in the Economy and in

the Manufacturing Sector 2/

Indices IV-2006=100, s. a.

s.a./ Seasonally adjusted and trend data. 1/ Productivity based on the amount of hours worked. Source: Unit cost prepared by Banco de México based on data from INEGI. The Global Index of Labor Productivity in the Economy (IGPLE), as released by INEGI.

s.a./ Seasonally adjusted and trend data. 2/ The total factor productivity was estimated as the Solow residual of a regression in logs of GDP versus labor and capital stock. Labor productivity is based on the amount of hours worked. Source: Prepared by Banco de México with data from IGPLE, EMIM and industrial activity data from Mexico’s System of National Accounts (Sistema de Cuentas Nacionales), INEGI.

50

60

70

80

90

100

110

120

I-1

993

I-1

996

I-1

999

I-2

002

I-2

00

5

I-2

008

I-2

011

I-2

014

Total factor productivity

Labor productivity in the manufacturing sector

Labor productivity in the economy

1Q 2014


85

87

89

91

93

95

97

99

101

103

105

I 200

7

I 200

8

I 200

9

I 201

0

I 201

1

I 201

2

I 201

3

I 201

4

Productivity 1/

Unit labor cost

1Q 2014

Outline

Monetary Policy 1






Consumer Price Index Annual % change

Source: Banco de México and INEGI.

1

2

3

4

5

6

7

8

9

10

11

12

13

Jan

-06

Jul-

06

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Headline

Non-core

Core Variability interval

The conduction of monetary policy, among other factors, contributed to the decrease in annual headline inflation in 2Q 2014. Later, as expected, an increase was observed, mainly due to a low base of comparison.


Although an important number of fiscal modifications that came into force in 2014 affected the core price index, its annual change kept close to 3 percent.

0

1

2

3

4

5

6

7

8

9

10

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Merchandise

Non-food merchandise

Food, beverages and tobacco

Services

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

Core Price Index Annual % change

25

Merchandise

-2

-1

0

1

2

3

4

5

6

7

8

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Services

Education (tuiton)

Housing

Other services


-15

-12

-9

-6

-3

0

3

6

9

12

15

18

21

24

27

30

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Agricultural

Livestock

Fruits and vegetables

Agricultural Energy and Government Approved Fares

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

Non-core Price Index Annual % change

0

2

4

6

8

10

12

14

16

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Energy and government approved fares

Gasoline

In 2Q 2014, non-core inflation was lower than at the beginning of the year, although it increased recently due to arithmetic effects of a low base of comparison in the agricultural price subindex.


-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Output Gap 1/

% of potential output, s.a.

s.a./ Calculated with seasonally adjusted data. 1/ Estimated using the Hodrick-Prescott (HP) filter with tail correction method; see Banco de México (2009), “Inflation Report April–June 2009”, p.69. The shaded area is the 95% confidence interval of the output gap, calculated with an unobserved components method. Source: Calculated by Banco de México with data from INEGI.

GDP

IGAE

May 1Q 2014

Due to the evolution of economic activity in 1Q 2014, the output gap widened and, despite the foreseen recovery, it is expected to remain negative until the end of 2015.


1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

20

10

20

11

20

12

20

13

20

14

Annual Headline Inflation Expectations Median, %

Break-even Inflation Decomposition 1/

%

Source: Banco de Mexico´s Survey. 1/ The inflation risk premium is calculated with an affine model as described in Aguilar, Elizondo and Roldán (2014) with data from Valmer and Bloomberg.

Next 4 years

Next 5-8 years

End of 2014

End of 2015

Variability interval

July

Long-term inflation expectations implicit in market instruments have gradually declined, while those obtained from surveys remain at 3.5 percent.

28

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Inflationary risk premium

Long term inflation expectation

Break-even inflation implicit in 10-year bonds 3.36

0.12

3.24

July


1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

2

3

4

5

6

7

8

9

10

11

12

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

30 years

10 years

1 day

6 months

Interest Rates of Government Securities 1/

%

1/ Since January 21, 2008, the overnight interest rate corresponds to the target for the Overnight Interbank Interest Rate. Source: Banco de México and Proveedor Integral de Precios (PiP).

August

Spread between Mexico and U.S. Interest Rates

Percentage points

Source: Banco de México, Proveedor Integral de Precios (PiP) and U.S. Department of the Treasury.

Reflecting the decrease in the reference interest rate, interest rates and spreads between U.S. and Mexican long-term interest rates decreased.

August

29

10 years

1 day

6 months 30 years


Thus, the yield curve shifted downwards and the expected short-term interest rates for 2014 and 2015 decreased.

Expectations for the Overnight Interbank Interest Rate

%

Source: Banco de México’ survey.

Government Bond Yield Curve %

Source: Banco de México and Proveedor Integral de Precios (PiP).

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

1 1 3 6 12 2 3 5 10 20 30

Day Months Years

30-Dec-13

31-Mar-14

11-Aug-14

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Observed

May 2014

June 2014

July 2014


Outline

Monetary Policy 1






GDP Growth Annual %, s.a.

s.a./ Seasonally adjusted data. Source: INEGI and Banco de México.

Economic Activity Outlook

Output Gap % of potential output, s.a.

s.a./ Elaborated with seasonally adjusted data. Source: Banco de México.

Fan Charts

GDP Growth

2014 Between 2.0 and 2.8%

2015 Between 3.2 and 4.2%

Increase in the number of IMSS-insured workers

2014 Between 570 and 670 mil

2015 Between 620 and 720 mil

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q42008 2010 2012 2014 2015

-9-8-7-6-5-4-3-2-10123456789

-9-8-7-6-5-4-3-2-10123456789

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q42008 2010 2012 2014 2015

32

2013 Q4

2014 Q4

2015 Q4

2013 Q4

2014 Q4

2015 Q4


Risks to the Growth Outlook:

The possibility of a better than expected implementation of structural reforms with its consequent impact on investors’ and economic agents’ expectations.

Economic agents’ confidence might recover more slowly than anticipated, which would delay a full recovery of domestic demand.

Downward:

Upward:

The possibility of a more vigorous than expected recovery of U.S. economic activity.

33


Inflation Forecasts

Headline inflation

20

14

2

01

5

Core inflation

It is anticipated to remain close to 3 percent in the rest of 2014.

It is expected to be below 3 percent in 2015.

34

It is estimated to reduce to levels close to 3 percent at the beginning of 2015 and to stay around that level for the remaining of the year.


• Second half of 2014: it is expected to remain close

to 4 percent, although it could exceed that level at some point, as happened in July.

• End of 2014: it is anticipated to lie below 4 percent, as the effects of relative price changes from November and December 2013 vanish.

Annual Headline Inflation 1/

% Annual Core Inflation 2/

%

1/ Quarterly average of annual headline inflation. Source: INEGI and Banco de México.

2/ Quarterly average of annual core inflation. Source: INEGI and Banco de México.

Fan Charts

2008 2010 2012 2006 2008 2010 2012 2006 2014 2014 2015 2015

The fading of the effect of the relative price changes and the expectation that the increments in gasoline prices will be in line with expected inflation, will contribute to the decrease in inflation in 2015.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4

Observed

Headline inflation target


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4Q2Q4

Observed

Headline inflation target


35

2013 Q4

2014 Q4

2015 Q4

2013 Q4

2014 Q4

2015 Q4


Downward Upward

The inflation outlook might be affected by certain risks:

The possibility of a lower than expected recovery of the Mexican economic activity.

New episodes of volatility in international financial markets that imply exchange rate adjustments, which in turn may affect inflation (moderately and transitorily).


Banco de México’s Board of Governors considers that the monetary policy is consistent with the efficient convergence of inflation to its 3 percent target.

However, the Board will closely monitor the performance of the inflation determinants and the medium- and long-term inflation expectations, including the foreseen recovery of the economy and the monetary policy stance of Mexico relative to the U.S., in order to provide the necessary conditions to reach the 3 percent target of headline inflation.

Monetary Policy Stance


The completion of the legislative stage of the structural reform process, aimed at increasing the country’s productivity, is encouraging.

The recent approval of the secondary legislation of the economic competition, telecommunications and broadcasting and energy reforms is an indispensable step in the right direction. Thus, these reforms are expected to:

Boost the economy’s competitiveness.

Have a positive and sustainable impact on employment, wages,

potential growth and investment climate.

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The increase in productivity would allow reaching higher aggregate demand and supply growth rates without generating inflationary pressures. The latter will be more likely given that the mentioned reforms were achieved in an environment of macroeconomic stability.

In the future, despite the great progress made, it is still imperative to encourage an adequate implementation of the reforms.


quarterly report · quarterly report 2 april-june 2014 . monetary policy conduction monetary policy...

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