Banxico: Strategies for Navigating the Turbulent Economic Horizon
The Bank of Mexico, known as Banxico, must adopt a cautious approach in its monetary policy to achieve the inflation target of 3%, as stated by Irene Espinosa, who is stepping down from her position as the bank's deputy governor. This recommendation comes at a time when the newly elected U.S. president, Donald Trump, has suggested the possibility of imposing a 25% tariff on Mexican goods. The uncertainty generated by these threats has led to a depreciation of the exchange rate, which could impact inflation in the future. “We are facing a challenging and complex landscape due to various internal and external factors. The arrival of the new president in the United States is accompanied by protectionist and tariff measures, as well as a more expansive fiscal policy that could lead to higher interest rates and increased inflation in that country,” Espinosa commented during an interview.
In her office in the Historic Center of Mexico City, the deputy governor pointed out that Banxico has done its part and that current inflation in Mexico is not only a consequence of the pandemic but also of global inflationary pressures. “It has become evident that fiscal stimuli in foreign countries generate a rebound inflation effect in other economies.” The second term of Trump in the White House has only reignited interest in the repercussions of tariffs; the Republican has also expressed his dissatisfaction with Federal Reserve Chairman Jerome Powell, suggesting his potential dismissal for not succumbing to pressure to cut interest rates. According to Espinosa, criticism from a federal government towards a central bank is common, but it should not interfere with the latter's decisions. “There is always a logic of tension between the Executive and an autonomous central bank,” but she emphasizes that it is the markets that really indicate when such autonomy might be at risk. When asked if she ever feared an attack on Banxico's independence, Espinosa assured that the bank's legal framework is quite robust, and therefore, she did not perceive any signs of threat. “Banxico’s autonomy is well-established in our constitution, and we have enjoyed the support of presidents who have recognized its importance,” she stated.
In terms of communication, Banxico has made significant progress and improved its transparency regarding its political and economic agenda. A recent example has been the publication of inflation forecasts with each announcement of monetary policy, instead of just in quarterly reports. “I was recently discussing with Mr. Miguel Mancera how the best practice used to be to communicate nothing, so we have achieved significant progress, although at times, providing too much information can complicate market expectations,” she said. She also encouraged recognizing that this communication is crucial for the credibility of the bank’s inflation projections, something that Deputy Governor Jonathan Heath had previously mentioned.
Since joining Banxico in 2018, Irene Espinosa has been the first woman on the Governing Board and mentions two key moments that marked her tenure: the creation of the new G family banknotes and the inauguration of the Bank of Mexico Museum. She highlights how Mexican society showed great interest in the pieces that reflected historical milestones and ecosystems, with the axolotl being the most representative. “An endemic symbol that is endangered has been given new value,” she recalled. Meanwhile, the museum opening aims to bring the public closer to the bank's work and explain concepts like money in an architecturally impressive space.
Although President Claudia Sheinbaum has not appointed her successor, Espinosa makes it clear that she does not seek to be reappointed. “I am grateful for this extensive period, but it is essential to make way for new profiles. Believing in cycles and not getting trapped in the same position is fundamental,” she reflected. With more than 30 years of experience in economics, she hopes to rethink her career in 2025 and contribute to a national or international project after a well-deserved break. “I want to take a week without devices, enjoy reading, explore new places, and spend time on my physical well-being,” she concluded.
In times of economic uncertainty, it is crucial for institutions like Banxico to maintain their autonomy and transparency. Monetary policy decisions must consider not only external threats but also the internal and global environment. Adaptability and effective communication will be key to facing the upcoming challenges, as well as the importance of fostering a culture of trust in financial institutions, which can help stabilize the economy in the long run.
