remarks by mr. javier guzman calafell, deputy governor at the banco de mexico, on “ monetary policy implementation in a complex environment ”, at the aberdeen nyc emd policy maker power lunch. new york city, october 11, 2016. 1 my sincere thanks to aberdeen asset management for the invitation to participate in this event. the primary mandate of the banco de mexico, enshrined in the country ’ s constitution, is to aim at low and stable inflation. to this end, monetary policy is conducted within a framework supported by two main pillars : an independent central bank and an inflation targeting regime with a 3 percent objective for the annual rate of growth of consumer prices. in this context, the banco de mexico seeks an efficient convergence of inflation to the target, that is to say, at the lowest possible cost in terms of economic activity. at present, monetary policy in mexico is implemented in a rather complex environment. on the one hand, the level of output is below the estimated potential, and the available forecasts suggest that this gap will remain in negative territory through end - 2017. in addition, consumer price inflation displays a favorable behavior and has been persistently below the 3 percent target. however, on the other hand, the mexican peso has recorded an important depreciation over the last couple of years, and continues to be subject to significant pressures. naturally, this raises question marks about the accompanying risks to inflation. the views expressed in this document are strictly personal. let me elaborate on the macroeconomic situation under which monetary policy is carried out at present. after the decline observed in the second quarter of the year, economic activity has resumed a moderate rate of expansion, fueled by private consumption and services, on the demand and supply fronts, respectively. an accurate assessment of the economy ’ s position during the first half of this year is challenging, among other reasons since national account figures are distorted by seasonal factors which are difficult to correct. however, there are grounds to believe that economic activity has begun a phase of deceleration. the most recent information suggests a lower growth trend for both private consumption and services, and the remaining components of aggregate demand and supply remain stagnant. although labor market indicators provide mixed signals, they are generally consistent with a gradual deceleration of economic growth. the overall rate of unemployment has continued to fall, approaching levels observed prior to the crisis, but the pace of employment growth has lost some momentum and nominal wage increases remain contained. in this context,

, 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.