Mexico CBG interview: Carstens stands by his rate cut
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Mexico CBG interview: Carstens stands by his rate cut

Mexico’s central bank surprised the market in June when it cut its base rate by 50 basis points. Euromoney’s central bank governor of the year in 2013 stresses that the credibility of the bank’s focus on inflation should not be doubted

Augustin Carstens, Mexico's central bank governor“Our main motivation was not to sacrifice our inflation objective to promote growth” 

The combination of all the governments reforms – driven by energy reform in particular – are expected to add 100 basis points to 150bp to Mexico’s GDP growth by the end of the current administration in 2018. The government’s expectations of $50.5 billion of FDI have been endorsed by a traditionally more conservative private sector and local industrial growth is expected to benefit as well. Also, cheaper electricity could combine with the strong (but overshadowed) story of the increasing competitiveness of Mexican manufacturing.

China’s inclusion in the WTO hit Mexico because, uniquely in the region, it competed directly with China in sending exports to developed markets – the US in particular – while others in Latin America caught positive tailwinds from exporting commodities to China.

The competitive dynamic of China has slowed – and in some respects reversed – as China’s labour unit costs have risen, while rising logistics costs have also favoured Mexico as a basis for near-shoring.

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