Mexican president leaks news of central bank’s rate hike

Mexico’s president Andrés Manuel López Obrador told an early morning press conference that the central bank would hike rates, pre-empting the official announcement.

The Bank of Mexico board had moved its monetary policy meeting up a day to March 23, to avoid conflicting with a banking industry convention in Acapulco. However, the board had only planned to announce its decision at 1pm local time on March 24, or 7pm UTC.

There is a long history of tension between López Obrador and the central bank. The president’s latest move is likely to increase concerns about his respect for central bank independence.

López Obrador told reporters: “Yesterday here in Mexico, the Bank of Mexico increased the interest rate 0.5 points. We are going to have an interest rate of 6.5%, because when they increase the interest rates, there is less investment and this supposes that inflation falls, it is a mechanism of control”.

The Bank of Mexico has been raising rates since last June. With its latest increase, it has added 250 basis points to the rate since then.

Inflation has been a problem in the country for several months, and reached 7.3% in February. The Bank of Mexico has a 3% target.

Article 45 of the central bank law requires: “Individuals attending [meetings of the board of governors] shall maintain confidentiality regarding the issues addressed therein, except if disclosure is expressly authorised by the board of governors for communication purposes.”

The same provision permits the finance minister and the deputy finance minister to attend, but not vote, at meetings.

Gabriela Siller Pagaza, director of economic analysis at the BASE financial group, wrote on Twitter: “Never before has a monetary policy decision in Mexico leaked, and that the president was the one who did it creates concern for the independence of the central bank.”

History of conflict

The leak has raised alarms about the independence of the central bank from the government. López Obrador has incited such worries for several years. In 2020, he demanded that the central bank pay its dividend to the treasury almost a year early. The then-governor, Alejandro Diaz de León, refused.

Diaz de León and López Obrador also clashed over a plan from the governing party. This would have forced the central bank to buy up dollars in cash from the private sector where these could not be exchanged. Diaz de León warned this could involve the central bank in illegal flows of money, and damage reserves management.

López Obrador last year declined to nominate Diaz de León for a second term as governor. Instead, he nominated his finance minister, Arturo Herrera.

In November, he withdrew Herrera’s name and selected Victoria Rodriguez Ceja, a deputy finance minister, as his candidate. She became governor on January 1.