AMLO Says He’d Like Mexico to Cut Interest Rates to Boost Growth

Nacha Cattan and Eric Martin
AMLO Says He’d Like Mexico to Cut Interest Rates to Boost Growth

(Bloomberg) -- Mexico’s interest rates are too high for a slowing economy, President Andres Manuel Lopez Obrador said in an interview, though he added that he respects the central bank’s freedom to set them independently.

“The Bank of Mexico is watching over inflation. That’s not bad,” Lopez Obrador told Bloomberg Editor-in-Chief John Micklethwait in Mexico City. “But it’s important to lower rates to kickstart the economy.”

The leftist leader, who during a 50-minute interview repeated his vow to respect the central bank’s autonomy, has refrained from publicly expressing a view about interest rates since he took office. The press office of Mexico’s central bank declined to comment.

Other leaders, from Donald Trump to Turkey’s Recep Tayyip Erdogan, have been much more explicit in demanding lower borrowing costs to boost their economies as a global slowdown looms. That’s raised concerns that the whole idea of central-bank independence, a cornerstone of economic management for decades, may be under threat.

Mexico’s central bank has kept its benchmark rate at a decade-high 8.25%, even as inflation eased to below 4%. The result is one of the world’s highest real interest rates -- helping to make the peso among the strongest currencies this year.

But it’s also holding back growth in Mexico’s $1.2 trillion economy, which may already be in a mild recession. Output unexpectedly shrank in the first quarter. April-to-June numbers are due later this week, and the median estimate in a Bloomberg survey of economists was for a second straight quarterly contraction.

AMLO, as the president is popularly known, played down the recession concern, while saying that the economy isn’t growing the way he would like and that he wants to better distribute wealth.

Even if the economy avoids technical recession, the longer-run forecasts don’t look promising for AMLO.

Two of the five members of the central bank’s rate-setting board have suggested that there’s room for easing, but the majority view has been that core inflation remains too high.

Mexico’s interest-rate swap curve points to a quarter-point cut in the next three months, pricing in a reduction at either the central bank’s Aug. 15 or Sept. 26 meeting. The Federal Reserve is also expected to cut the U.S. rate this week.

AMLO was elected in a landslide last year after campaigning on a pledge to end decades of sub-par growth. Mexico’s economy has expanded at an annual pace of about 2.5% a year over the last quarter-century or so -- roughly in line with its northern neighbors, the U.S. and Canada, but only about half of the emerging-market average.

Mexico is forecast to grow at a pace of 1% to 2% through at least 2021. In addition to global problems, such as slowing trade and the threat of Trump’s tariffs, Mexico has been hit by a slowdown in corporate investment under Lopez Obrador, who canceled a $13 billion airport in the capital and took steps to limit private investment in the energy industry.

Separately, AMLO also said he’d support former central bank governor Agustin Carstens if he was to be a candidate for managing director of the International Monetary Fund despite their political differences. Carstens, who currently heads the Bank for International Settlements, vied for the position in 2011. At the time Christine Lagarde was selected for the job. She resigned this month to lead the European Central Bank.

“I would like to. I would always support a Mexican, if they’re a specialist in the material,” AMLO said about a hypothetical candidacy of Carstens, who earlier this month declined to comment when asked if he would vie for the job again.

(Adds comment about Carstens in the last paragraph)

To contact the reporters on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net;Eric Martin in Mexico City at emartin21@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Ben Holland

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.