Banxico members of the board air their differences on monetary policy on Twitter


Two of Mexico’s most vocal central bank board members took to Twitter on Friday to air their differences over monetary policy, with one saying high inflation was easing and the other insisting quickening core prices looked like a “grave” problem.

In almost a dozen tweets, Jonathan Heath sounded the alarm over accelerating core inflation, saying its persistence may signal a structural problem. Fellow board member Gerardo Esquivel tweeted a few hours later that inflation had peaked in late November and would continue to subside in the coming months.

Heath then countered that price increases had only decelerated due to slowing non-core inflation, which he said was “almost irrelevant” because that component is so volatile and doesn’t respond to monetary policy action.

Jonathan Heath

While both are vocal about their inflation views on Twitter, it may be the first time they so openly sparred on social media. It’s a sea change from the cautious central bank, known as Banxico, that governed for years before President Andres Manuel Lopez Obrador tapped both to the five-person board, and comes as a new governor, Victoria Rodriguez Ceja, takes the reins.

Heath and Esquivel’s views are being watched closely by economists who are forecasting whether the central bank will keep raising borrowing costs by 50 basis points, or return to quarter-point hikes, as one survey suggests.

Banxico, as the central bank is known, unexpectedly accelerated the pace of monetary tightening earlier this month, raising rates by half a percentage point to 5.50%.

Even though annual inflation at the end of 2021 was marginally slower than in November and even slower than analyst forecasts, it isn’t good news because core prices are rising faster, Heath said. The annual core figure stood at 6% in the last half of December.

It “signals the persistence of a more inertial or even structural problem,” Heath said in one Twitter post.

Inflation slowed to 7.36% in December from 7.37% the previous month, data released Friday showed, but still more than double the bank’s 3% target.

Esquivel argued that base effects from high inflation last year will allow price increases to moderate. That’s especially true for gasoline, he said, “whose annual change, although positive, will begin to diminish significantly.”

Gerardo Esquivel

Banxico’s next meeting is set to take place in February, the first one headed by Rodriguez Ceja, who replaced Alejandro Diaz de Leon at the start of 2022 as governor. The new leadership has added an element of uncertainty to future rate decisions as Mexico’s former spending chief has little monetary policy experience and her nomination by Lopez Obrador raised questions that she may be more likely to bend to his wishes.

Diaz de Leon had said before he left that the bank isn’t committed to further half-point increases in the future.

Source: El Financiero

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