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.
Showing posts with label monetary policy. Show all posts
Showing posts with label monetary policy. Show all posts
Thursday, June 9, 2011
Lesson in Mexico's Monetary Policy: Part 2
Mexico does not maintain foreign-exchange (forex) restrictions. Capital moves freely across the country's borders. Any forex policy changes require approval by the Exchange Rate Commission, composed of officials from the Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico -- SHCP) and Banco de Mexico.
Money-laundering regulations -- enacted since 1996 -- have improved scrutiny of large transactions. Rules require financial institutions (banks, credit unions, brokerage houses, exchange houses and "nonbank" banks) to report "suspicious" transactions to authorities within 20 working days. On a quarterly basis, financial institutions must also submit reports on transactions of monetary instruments with a value equal to or exceeding US$10,000. Nonetheless, money-laundering still remains a problem in Mexico, owing to lax enforcement and a lack of resources and co-ordination among the government bodies responsible for investigating and prosecuting money-laundering cases.
Source: Economist Intelligence Unit
Money-laundering regulations -- enacted since 1996 -- have improved scrutiny of large transactions. Rules require financial institutions (banks, credit unions, brokerage houses, exchange houses and "nonbank" banks) to report "suspicious" transactions to authorities within 20 working days. On a quarterly basis, financial institutions must also submit reports on transactions of monetary instruments with a value equal to or exceeding US$10,000. Nonetheless, money-laundering still remains a problem in Mexico, owing to lax enforcement and a lack of resources and co-ordination among the government bodies responsible for investigating and prosecuting money-laundering cases.
Source: Economist Intelligence Unit
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