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 Business News | May 2007 
Ortiz Says Mexican Inflation Expectations `Anchored'
 Thomas Black - Bloomberg
| | Guillermo Ortiz Martínez is the current governor of the Bank of Mexico, Mexico's central bank. |
Mexican central bank Governor Guillermo Ortiz said the narrow gap between short-term and long- term interest rates indicates investors are confident inflation will stay under control.
The yield on a 30-year peso-denominated government bond is 7.65 percent, compared with 7.62 percent for a three-year maturity.
"This implies that there's a strong anchor in the inflation expectations," Ortiz, 58, said during a conference of finance executives in Monterrey, Mexico.
A decade of economic stability in Latin America's second biggest economy, without abrupt drops in the peso-dollar exchange rate, has helped the central bank keep consumer prices under control because companies now focus on inflation expectations instead of the peso's value, Ortiz said.
Amid slowing inflation, economic growth has accelerated to an average of 2.6 percent from 1996 to 2006, compared with zero growth in the previous 15 years, Ortiz said. Over the last decade, the annual inflation rate has averaged less than 10 percent compared with about 50 percent from 1980 to 1995 as Mexico suffered through recurrent peso devaluations.
Economic expansion of less than 3 percent isn't enough, Ortiz said. Mexico needs to enact reforms to allow the economy to grow 5 percent to 6 percent annually, he said. On a per capita basis, Mexico's economy was twice as large as South Korea's in the 1960s, while it's only half the size of South Korea's now, he said.
Poor Performance
"In the past 40 to 50 years, we've had an economic performance that frankly has been bad," Ortiz said.
During the conference today, Mexican Finance Minister Agustin Carstens said economic growth will accelerate during the second half of this year and will rise to 3.6 percent to 4 percent in 2008.
The economy probably will expand 3.3 percent in 2007, he said, as growth quickens to 3.8 percent in the second half of the year. First-quarter economic growth was 2.6 percent.
"As this growth in the second half of the year materializes, it will allow us to grow at a rate near and even higher than 4 percent next year."
Carstens said Mexico's sustainable rate of growth likely will rise to 4 percent from 3.5 percent as banks begin to expand credit beyond consumers and lend more to companies, he said.
"We celebrate the fact that company financing from banks is very healthy and this also portends the time when it will be reflected in more productive activity," Cartens said.
Competition
Ortiz said just a few percentage points of higher growth can make a large difference over the long term. In 2030, assuming 3 percent annual economic growth, the country's gross domestic product per capita would be less than $15,000, he said. If the country would grow at 5 percent, the per capita GDP would be $23,000, he said.
Mexico requires more competition and more efficient spending to accelerate growth. For example, banks charge customers too much for using credit cards, discouraging consumption, he said.
"The competition has been insufficient to have better results," he said.
Mexico spends more on education as a percentage of its economy than most members of the Organization of Economic Cooperation and Development. Still, Mexico has one of the worst education levels of the organization.
"We're making an investment in education that's not translating into quality education," he said.
To contact the reporters on this story: Thomas Black in Monterrey, Mexico at tblack@bloomberg.net |
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