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Opinion

Mexico’s maverick approach to monetary easing

In a year of shocks and surprises, it’s hard to say where Mexico’s economic and financial performance ranks – but it’s up there.

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Ever since Andrés Manuel López Obrador (Amlo) assumed the Mexican presidency in December 2018, international investors have been watching for signs that he would adopt populist economic policies.

With no early signs of fiscal looseness, the arguments from some locals who had been pointing to the fiscal orthodoxy that characterized his time as mayor of Mexico City began to ease some jitters.

It convinced few: just wait, many said, for a crisis, and then we’ll see Amlo’s true colours.

But it turns out we have been witnessing Amlo’s true colours all along. If the global pandemic hasn’t tempted him to move to an expansionary setting with the public accounts, surely nothing will.

Even the IMF has been critical of Mexico’s rigid emphasis on balancing the books in the midst of a global demand and supply shock: Mexico expects a 0.2% public sector surplus this year and a balanced budget next year, with an increase of between just 1% and 2% in expenditure.

Meanwhile, monetary policy has eased, but at 4% still offers a juicy positive compared with the rest of large emerging markets, which have converged towards their zero lower bounds.

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