The Day at a Glance | January 20 2022

The Top

*ECB warns that a scenario involving high inflation for a longer period of time cannot be discarded.

*The People`s Bank of China cut interest rates once again; it cut the rate for one year (-10bp to 3.7%) and five year (-5bp to 4.6%) preferential loans.

*Unemployment in Mexico increased slightly to 4% (+0.1%) in December.

*Inflation is not speeding up quickly, nor is the recovery occurring as fast as in the United States; we have no reason to act like the FED: Christine Lagarde, President of the ECB.

*Biden backs the FED`s decision to fight high inflation and is working with oil producing countries in order to guarantee supply and contain the rise in prices.

*Mexico logged a new record number of COVID-19 cases (60,552); a record was set at a global level as well (3.57 million).

Economic environment

Discussions in the European Central Bank. According to the ECB`s most recent monetary policy meeting minutes, members are still considering that the rise in inflation is being caused by mainly transitory factors. However, they acknowledged that the trend in inflation is uncertain and long lasting inflation cannot be discarded. Because of this, they have discussed the need to maintain a flexible stance in order to act decisively in case there are changes in expected inflation. The Governing Board decided to make a clear statement, which states that they are ready to act if pressures on prices are persistent and inflation does not slow down as much as estimated. Most members, however, still believe that it`s important to maintain an accommodative stance in order to back the recovery; many believe that it`s important to look past temporary inflation in order to not affect growth. The virus has deteriorated the economic situation in the last few months and withdrawing the emergency asset purchasing program in March could be premature. They decided to base their future actions on available information; they will maintain flexibility in order to recalibrate their stance according to circumstances. Christine Lagarde reiterated that there is a lack of urgency in normalizing Europe`s monetary policy by assuring that inflation in the continent is not very high – nor is the recovery as advanced as in the United States – which is why the ECB has no need to adopt such an aggressive stance like the FED. Lagarde expects bottlenecks, production chain disruptions and energy prices to start showing signs of improvement in 2022, which is why she expects inflation to drop under the 2% target in the medium term. However, she assured that they will be ready to act in case they are mistaken.