Carstens Says Too Early to Comment on Japan's Support

From Reuters:

Mexican Central Bank Governor Agustin Carstens, a contender to head the International Monetary Fund, said on Friday that it would be premature for him to comment on whether he earned Japan's support for his bid to become head of the fund.

Carstens, speaking to reporters after meeting Japanese Finance Minister Yoshihiko Noda and Bank of Japan Governor Masaaki Shirakawa, said he explained his views on the fund and his ideas on Japan's role.

"The Japanese finance minister listened very carefully to my position," Carstens told reporters. "It is still premature, but I had a good discussion with him."

As we all know, Carstens is running against French Finance Minister Christine Lagarde to replace IMF Chief Dominique Strauss-Kahn. It seems as though Carstens, although cautious in his statements, is optimistic about Japan's support for his bid to the IMF presidency.

What do you know about financial relations between Japan and Mexico? Is their good reason to believe that Japan will support Mexico's Chief instead of Lagarde?

Mexico's portfolio has reached a historical high, buoyed by strength in foreign investment, according to a research report Monday from Bank of America Merrill Lynch. Portfolio inflows increased to $39.4 billion in 2010 from $19.1 billion in 2009, the report said, almost a 50% increase. Read more about the historic high in foreign investment in Mexico here.

Lesson in Mexico's Monetary Policy: Part 4

The central bank is authorised to auction its reserves of US dollars if the peso depreciates by 2% or more against the previous day's close. In this way, the central bank can increase liquidity in the market and smooth volatility in the value of the currency.

In 2009 the central bank put in place a programme of interest-rate swaps for up to Ps50bn (US$3.7bn) to facilitate banks' liability management, enabling them to swap exposure to long-term fixed-rate instruments for short-term variable paper.

In January 2011 the IMF renewed Mexico's precautionary, two-year US$72bn flexible credit line (FCL). The FCL insures against possible volatility in global markets by supporting the country's balance of payments and international reserve position.

Source: Economist Intelligence Unit

Lesson in Mexico's Monetary Policy: Part 3

The central bank, Banco de Mexico (Banxico), is the autonomous authority on monetary policy. The central bank has the primary objective of maintaining stability in the purchasing power of the peso. The value of the peso is determined by the market, under a floating exchange-rate regime in place since the December 1994 peso devaluation. However, the central bank does intervene in foreign-exchange markets to maintain currency stability. The Exchange Rate Commission sets policy; it is made up of six members -- three each from the Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico -- SHCP) and the central bank, with the SHCP holding the deciding vote.

In January 2008 Banxico formally adopted an operating target for the overnight interbank rate (tasa de fondeo bancario) as a means to control peso liquidity in the market. The overnight interbank rate is set by the central bank's board of governors at its policy meetings. In 2009 Banxico engaged in a cycle of aggressive monetary easing to ease credit conditions and stimulate the slowing economy during the international financial crisis. The interbank rate was cut by 375 basis points in the first half of 2009, from 8.25% in January to 4.5% in July, where it remained as of end-March 2011. The Economist Intelligence Unit expects Banxico to maintain the interbank rate at this level throughout 2011.

Lesson in Mexico's Monetary Policy: Part 1

Banco de Mexico (the central bank -- Banxico) is the autonomous authority on monetary policy. The central bank has the primary objective of maintaining stability in the purchasing power of the peso. The value of the peso is determined by the market through a floating exchange-rate regime.

The central bank monitors price levels, and the economic variables that influence prices, in determining monetary policy. It also monitors the exchange rate, differences between observed and projected inflation, inflation expectations, revisions on collective employment contracts, producer prices, and the balances of the current and capital accounts.

Lesson in Financial Regulation in Mexico: Part 1

Financial regulation has been extensively reformed and improved in the past decade under the auspices of Banco de Mexico (Banxico -- the central bank), the Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico -- SHCP) and the National Banking and Securities Commission (Comision Nacional Bancaria y de Valores -- CNBV). Some of the more important steps in creating a solid regulatory framework have included the creation of a limited deposit-insurance fund; the introduction of new capital-adequacy and provisioning requirements; accounting standards that are revised regularly to match US practices; and the implementation of stricter lending practice requirements aimed at better assessment of the reserves needed to cover losses.
In 2010 Banxico focused on aiding Mexico's recovery from the global financial crisis, while also preventing the domestic economy from slipping back into recession. At the height of the crisis, Banxico engaged in a cycle of monetary easing and took a series of policy measures to ease credit conditions, stimulate the economy and counter pressure on the peso. The interbank rate was cut by 375 basis points in the first half of 2009, from 8.25% in January to 4.5% in July, where it remained as of end-March 2011.
In July 2010 Banxico published new norms regulating charges and fees financial institutions are permitted to impose on their clients (Banco de Mexico Circular 22/2010). The new rules prohibit credit-granting institutions from charging fees for services such as the opening and closing of on-demand savings accounts, and the cancelling of credit cards. Fees for overdrafts are only permitted if and when the institution's client has agreed to such a charge through a separate signed consent form. The reforms became effective at the start of 2011.