(Adds more IMF comments)
MEXICO CITY, Oct 7 (Reuters) – Mexico’s growth is expected to slow in coming quarters despite the country’s fiscal and monetary policy positioning it well to weather global turmoil, the International Monetary Fund said on Friday. in a press release.
The impacts of the coronavirus pandemic and a turbulent global environment could exacerbate longstanding inequality and weak growth in Mexico, the IMF said after a mission to the country.
Mexico’s interest rate hikes, combined with its neutral fiscal stance in 2022 and 2023, are the right policy moves to deflate the economy, the IMF said.
The country is vulnerable to a slowdown in U.S. economic growth, the IMF said, which could be offset by accelerating offshoring or bringing foreign production closer to its final selling point.
Mexico’s central bank, known as Banxico, has taken a proactive approach to widespread inflation by raising interest rates, the IMF said. The bank raised its key rate last week by 75 basis points to a historic rate of 9.25%.
However, the Fund added that keeping annual inflation in check – which stabilized at around 8.7% in September – will likely necessitate further interest rate hikes. Banxico is targeting 3% inflation, plus or minus one percentage point.
“There is significant uncertainty about the timing, speed and sustainability of the downward path of inflation in 2023,” the IMF said.
The Fund also deemed the tax measures implemented to mitigate the cost of living as “untargeted”.
He estimated that the Mexican fuel subsidy cost around 1.4% of the country’s gross domestic product (GDP) in 2022. Mexican President Andrew Manuel Lopez Obrador argued that inflation would have reached 14% without the fuel subsidies. keep fuel prices low.
To strengthen Mexico’s fiscal policy, the IMF has argued for passing on some fuel costs to consumers to create space in the budget for social safety net programs.
He also suggested an adjustment to the business strategy of state oil company Petroleos Mexicanos, one of the most indebted public companies in the world.
Meanwhile, strategies to cushion the blow of rising food prices have so far been “difficult to assess”, the IMF said.
Lopez Obrador rolled out an anti-inflation plan on Monday, waiving some regulatory requirements. (Reporting by Mexico City Newsroom; editing by Cassandra Garrison and Alistair Bell)