remarks by javier guzman calafell, deputy governor at the banco de mexico, on “ mexico ’ s monetary policy and economic outlook ”. the united states - mexico chamber of commerce, northeast chapter. february 15 - 16, 2018. 1 first of all allow me to thank the us - mexico chamber of commerce, and especially alejandro ramos, for the invitation to share with you some views on monetary policy and the economic outlook for mexico in these challenging times. world economic activity seems to be gaining steam at the beginning of 2018 and a number of timely indicators point to further strength in coming months. in addition, its generalization among different countries, from both advanced and emerging economies, continues. not surprisingly, then, projections for global growth for this year and the next have been revised upwards. given its relevance for the mexican economy, it is important to highlight that, according to imf figures, 2 within the advanced world it is the us economy that has seen one of the largest improvements in projections for gdp growth during the period 2018 - 2019. the momentum shown by world economic expansion, combined with the stimulus resulting from the tax reform recently approved in the united states, has improved the balance of risks for global growth in the short term. however, when seen from a longer - term perspective, a number of clouds in the horizon continue to tilt this balance to the downside. in fact, recent the views and opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the institutional position of the banco de mexico or of its board of governors as a whole. international monetary fund, world economic outlook update, january 2018. developments represent a timely reminder of the nature of the challenges that we might be facing in the not - to - distant future. one of the most important among them relates to the normalization of monetary policy in the united states. the federal open market committee has insisted once and again that it expects gradual adjustments in its monetary policy stance. however, it is clear that the possibility of surprises on this front has increased. under a situation of limited, if any, slack in the us economy, a policy of fiscal stimulus as the one under way can lead to an acceleration of price growth, which, combined with its implications for public finances, could give rise to an increase in interest rates above current expectations. uncertainty in this respect is of course not limited to the united states. as is well known, a noticeable improvement in economic activity has been observed in other advanced economies,

##ination of this process is well known – the longest period of hyperinflation in the 20th century that lasted for longer than twelve months! we obviously took our time in taking the decision what to do! and recently we received a positive assessment of our decision – inflation has never been lower than recorded at end - may while economic growth has never been higher than recorded in the first quarter of 2007 when it reached as much as 8. 0 %. of course, the media will not be enticed by this fact because it represents a confirmation of what we have been trying to impress on the public for years! prices of the nbs services have never been lower than they are today, and while everybody else is looking for ways to solve their problems almost exclusively by increasing prices, and naturally by taking advantage of their monopoly position, we in the nbs have been continually decreasing prices of our services. the nbs total wage bill recorded in 2004 at total employment of 5, 500, remains adequate today and, i am convinced, will remain so over the next two to three years. the government increased the budget - financed employment last year and has done it this year again. the nbs is not the reason for the existence of the banking sector, but quite the other way around. the state should follow the same principle. i think it is absurd, not amusing, that many ministers are aware of the fact that a cut in employment would mean higher efficiency of government administration, higher quality of services and higher wages, but readily use one and the same pretext : “ why should i be the one to do the dirty job when others have even bigger excess work force. ” the impact of such policy on inflation is obvious as growth in regulated prices contributed 3. 6 percentage points to the 4. 2 % overall growth in prices, of which : prices of electricity by 1. 08 %, communal services by 0. 71 %, cigarettes by 0. 68 %, oil derivates by 0. 50 % and medicaments by 0. 10 %. naturally, all those adjustments in regulated prices mean higher revenue for the budget or some other indirect users of the budget revenue – and when money is more abundant, there is no reason not to spend more. being a keen onlooker of structural reforms, i am personally honestly fascinated by the lack of principles as well as by partiality and randomness in their implementation : - on the one hand, some of the banks with which our citizens hold