The Bank of Mexico applied this Thursday its second consecutive rise of 75 points to the interest rate, expected by the market, with which the benchmark reached its highest level in history: 8.5 percent.
Since the Central Bank adopted the interest rate as an operational objective in 2008the previous benchmark record was 8.25 percent, which was reached in August 2008 and December 2018.
The rate increase was taken unanimously by the Governing Board, which pointed out that the conduct of monetary policy faces “greatest challenges” represented by global financial conditions, geopolitical conflicts and inflationary pressures that have accumulated during the COVID-19 pandemic.
“The Governing Board will closely monitor inflationary pressures, as well as all the factors that affect the expected trajectory for inflation and its expectations,” it added in its monetary policy statement.
On this occasion, Banxico did not ‘open the door’ to a new increase of 75 basis points to the reference rate, since it stated that it “will assess the magnitude of the upward adjustments in the reference rate in its next meetings in accordance with the prevailing circumstances”.
Banxico’s bullish cycle continues
This is the tenth increase in a row at the rate since Banxico began its upward cycle in 2021, the year in which inflation left the institution’s target range (3 percent +/- one percentage point) following spending months ‘controlled’ by the effect that the COVID pandemic had on product demand.
Since June of last year, the institution has increased its rate at 450 basis pointsand the latest hikes have been among the most aggressive by the Central Bank in the context of inflation at levels not seen in decades.
In July alone, the National Consumer Price Index (INPC) stood at 8.15 percent per year, its highest variation since December 2000, driven by the increase in food prices such as eggs (37.2 percent); flour (33.1 percent), and white bread (27.3 percent), among others.
To this is added that the forecast of analysts is that the ‘peak’ of inflation will arrive until August or even September, touching 8.5 percent due to the ‘holiday effect’ and the possible increase in the prices of school fees and school supplies back to school.
Inflation forecasts rise
In fact, the Bank of Mexico upgraded its INPC forecasts for both 2022 and next year due to higher-than-anticipated pressures for headline and core inflation.
For this year, the institution expects inflation to close at 8.1 percent (his previous forecast was 7.5 percent), while he expects the index to open 2023 with levels of 7.1 and 5 percent in the first two quarters.
The institution is still waiting for inflation to return to your target range until the period July-September 2023, at a level of 3.7 percent.
The new rate hike comes following the United States Federal Reserve (Fed) did the same at the end of July and raised its rate by 75 basis pointsplacing its reference in the range of between 2.25-2.5 percent.
That decision by the Fed put “pressure” on Banxico to raise the benchmark by the same amount and thus maintain an attractive rate differential that would prevent a greater outflow of foreign capital, mainly in the debt market.
With information from Cristian Téllez and Guillermo Castañares
