Mexican President Andres Manuel Lopez Obrador criticized the use of monetary policy to curb inflation, saying high-interest rates stop economic growth, one week before the nation’s central bank may deliver its biggest hike yet.
AMLO likened repeatedly raising rates to turning off the engine of a car when it overheats and said he would rather focus on increasing production to avoid supply shortages.
“The formula that they teach economists in all universities in the world and that they have applied in the neoliberal period is that if there is inflation, key rates go up to stop economic growth,” AMLO said at a press briefing on Tuesday. “It can help to stop inflation in a transitory way, but what’s really important is what you produce.”
Mexico’s central bank is expected to deliver a 75 basis-point rate hike next week, bringing its key rate to 7.75%, to tame inflation that surpassed 7.6% in May. Never since starting its inflation-targeting regime in 2008 has Banco de Mexico increased rates by more than 50 basis points. The president underscored the pressures that higher rates put on the economy without singling out the upcoming monetary policy decision.
Lopez Obrador has sought to increase the country’s capacity to produce grains and refine oil, both of which he highlighted as key strategies during the press briefing. He has come under scrutiny for his relationship with the central bank since replacing last year his original nominee to head the institution. In March, he accidentally blurted out a rate decision hours before the official announcement.
“When a car heats up so much that it shuts off, it’s true, it does not heat any more and there’s no inflation,” AMLO said. “But it also doesn’t move.”
Source: El Financiero