Banxico's Communication and Independence

The Bank of Mexico (Banxico) faced criticism after cutting its interest rate, leading to accusations of losing its credibility and independence. Various commentators concluded, based on Banxico's mention of weak economic growth, that the central bank is more concerned with growth than inflation. Instead of insisting on achieving the inflation target in the very short term, Banxico should conduct a deep analysis to explain why the target has not been met and communicate it to the public, setting a credible and realistic inflation forecast. The central bank should also improve communication with market participants and the general public. For instance, after the conflict in Iran erupted, Banxico lacked communication explaining why it considered the conflict a temporary supply shock, against which monetary policy should not react. Better communication can be a powerful tool to anchor expectations, as potent as the monetary policy stance itself. Banxico should also clarify that adjustments to inflation forecasts do not necessarily lead to automatic changes in monetary policy, especially when facing supply shocks or relative price changes. Furthermore, the governor of Banxico should be more actively present in forums, speeches, and meetings with market participants, and hold a press conference after each monetary policy decision, as the U.S. Federal Reserve does. This would help clarify the bank's position and mitigate the perception of possible government interference in its decision-making.