The credibility of the Bank of Mexico is in decline

Only a shock in the international context seems likely to shake the obsession of the Bank of Mexico's Board of Governors with reducing the interbank interest rate. At least that's what Victoria Rodríguez Ceja, governor of the central bank, said last week when the Bank of Mexico's 2025 Financial Stability Report was released.

In response to questions from the press, the official was emphatic in pointing out that: a) the inflation rate is very close to the historical average for the 2003-2019 period; b) that core inflation has been below 4% for eight months; c) the inflation levels we are seeing are evidence that we are leaving behind this inflationary episode, which stemmed from these global shocks; d) that the assessment Banxico has been conducting already considers the uncertain environment we are facing globally due to the current situation of trade tensions stemming from decisions by the United States.

The first thing to note is that, viewed on a biweekly basis, inflation for the first half of May was 4.22%, but for the second half of the month, it soared to 4.62%; a biweekly jump of that magnitude hasn't occurred since the first half of July last year. So, assuming that inflation is oscillating around the historical average is overly optimistic. Furthermore, although Governor Rodríguez Ceja underestimates the analysis of what is happening at the margin—the most recent figure added to the series on the National Consumer Price Index (NCPI)—the latest data indicate that the pace of price growth began to increase again in May. Similarly, core inflation in May resumed its upward trend, reaching a monthly average of 4.15%, which cannot be considered "a little above four."

Then, the fact that Banxico's assessment already considers the uncertain environment is also a bit overconfident, especially given the latent threat of worsening instability in the Middle East for months. With the conflict between Israel and Iran now in full swing, and the volatility surrounding oil prices, which initially soared and then retreated slightly, it is a fact that we will be observing relatively greater variability than in recent months, especially given the latent risk that Iran will decide to block the Strait of Hormuz, through which nearly 20 million barrels of crude oil transit per day, practically a third of the daily volume of oil traded globally via tankers.

Therefore, although it may seem late, the Board of Governors of the Bank of Mexico should take advantage of the current international situation of increased instability to implement two actions. First, act in an orthodox manner, with prudence, and not rush to lower the interbank interest rate even further, at least in the decision to be announced on June 26. Second, and even more important, review the rhetorical approach it has been using in its monetary policy decisions, because the way in which the credibility and good reputation of the Bank of Mexico have been eroded is deeply worrying.

For a central bank, consistently working to define achievable or realistic policy objectives, and their announcement and implementation, translate into a process by which the decisions of the monetary policy authority are credible and therefore effective. However, when economic agents begin to doubt what the central bank communicates regarding inflation expectations, this affects their assessment of the decisions and the timeliness with which they are made.

Mexico is in no position to allow the Bank of Mexico to squander the valuable credibility it has built over many years. Credibility is not earned by being predictable for the Government of the Republic, which is eager to boast economic growth.

*The author is an economist.