manuel sanchez : mexico and texas – ties and mutual benefits remarks by mr manuel sanchez, deputy governor of the bank of mexico, at the centennial lecture series, the university of texas, el paso, texas, 10 september 2015. * * * i would like to thank you for the opportunity to participate in the centennial lecture series of the university of texas at el paso. it is a great honor to speak in this distinguished academic center, which has contributed considerably to closer relations between mexico and the united states. i congratulate those of you who have been an essential part of the success story of this institution. the university of texas at el paso has grown at an impressive pace during its first century. after starting out as a small school specialized in mining and metallurgy in 1914, today it is a full - fledged branch of the university of texas, offering a wide range of degrees. el paso now leads in programs on border issues and the relationship between the united states and mexico. enrollment has increased notably over the years, with the hispanic community accounting for a large majority of the student body. today, i would like to focus on mexico and texas as two increasingly integrated economies. i will begin with a review of how their links have expanded over time, yielding significant mutual benefits. i will then briefly describe recent developments in and the outlook for the mexican economy, in a context in which the united states and texas play important roles. finally, i will discuss monetary policy and inflation in mexico. as usual, my remarks are entirely my own and do not necessarily reflect the views of the bank of mexico or its governing board. mexico and texas mexico and texas have a deeply interconnected history of growth. the state of texas can be rightly viewed as one of the largest economies in the world, and its geographic proximity to mexico makes it all the more logical for the two to exploit mutually advantageous opportunities. their symbiosis is a natural consequence of a common cultural heritage, and, in economic terms, includes trade, investment, human capital, and many other areas. in particular, texas is mexico ’ s main trading partner within the united states, and mexico is the state ’ s main partner as well. in fact, texas accounts for more than twice as much of total mexican trade volume as china. as with the united states as a whole, commercial linkages were deepened by the north american free trade agreement, perhaps the most profound structural change ever undertaken by mexico. 1 mexico purchases many goods from texas

, informe trimestral, abril – junio 2015, august. bis central bankers ’ speeches inflation and monetary policy monetary policy in mexico has been guided by the priority aim of attaining price stability, which, within an inflation - targeting approach, means a permanent objective of 3 percent annual inflation. the conduct of monetary policy has taken into account the cyclical phase of the economy. in the last two and a half years, the policy interest rate was cut by 150 basis points to accommodate sluggish economic activity. after some price pressures in 2014 coming mainly from tax hikes, annual inflation in 2015 has remained on target, even reaching historically low levels below the objective. this achievement is noteworthy, given the fact that until only a few years ago, mexico had a long history of high and unstable inflation. therefore, it is imperative to consolidate the record, recognizing that price stability demands continuous attention to prevent a reversal of the trend. some factors call for vigilance. recent performance has been aided by positive shocks such as favorable base effects related to last year ’ s tax hikes, the elimination of domestic longdistance telephone charges, and slower increases in energy prices. these phenomena may prove ephemeral. peso depreciation has not affected inflation much so far, and the impact has been concentrated in durable goods. this may not be the case going forward, especially if the weakening of the currency becomes amplified. additionally, in spite of current unprecedented declines in inflation, survey expectations for the medium term are stable but above the target. this may reflect a perception that work still needs to be done to solidify the good results. price stability will not be secure until mediumterm inflation expectations are firmly anchored on the objective. the bank of mexico expects inflation to remain around the target in 2015 and 2016. 9 nevertheless, upside risks should be monitored, especially given the possibility of secondround effects. continued significant peso depreciation, negative supply shocks, and eventual aggregate demand pressures are among these risks. concluding remarks let me conclude by saying how much i value the contributions of the university of texas at el paso to the understanding and collaboration between our societies. we have exploited opportunities in better ways due to the assiduous efforts of academics from this university, and i have no doubt that further progress is yet to come. texas and mexico continue to find new avenues to profit mutually from trade, investment, and human capital resources. mexico currently faces challenges both on the international and domestic fronts.