Mexico | Banxico’s communication: improvements and challenges

The inflation targeting regime adopted by Banxico in 2001 became the monetary policy strategy that has prompted relevant improvements in communication and transparency of its goals, plans and policy decisions.

Key points

• Key points:
• Among the most important recent improvements that occurred in 2021 and 2022, we have the Board of Governor’s decisions to update inflation forecasts and provide a forward guidance in each monetary policy statement.
• Nevertheless, a complete explanation but associated with two revisions of inflation forecasts is released up to the next Quarterly Inflation Report. It would be timing and convenient that such explanation be simultaneously published with the revision of forecasts.
• Given that Banxico has been trying to correct an inflation deviation each time higher with respect to the target of 3.0% under a convergence horizon of eight quarters, GDP will be even more below potential in the following quarters.
• Even though there is a risk of medium-term inflation expectations getting a little bit unanchored, Banxico should assess the convenience of changing the convergence horizon.
• A well-justified and clearly explained extension of the horizon would avoid the risk of a credibility loss from frequently rolling the horizon of eight quarters.

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