Banxico hikes interest rates again

12 Nov 2021

Mexico’s central bank has raised its benchmark interest rate by 25 basis points for the fourth consecutive policy meeting on Thursday, up to 5.00%, as markets anticipate more hikes in the future.

The decision matched a Reuters poll of analysts at a time when annual inflation accelerated to 6.24% in the year to October, more than twice the central bank’s goal of 3%, plus or minus one percentage point.

“The shocks that have increased inflation are largely considered to be transitory. Nevertheless, the horizon in which they could affect it is unknown, and they have involved a wide range of products, while being of considerable magnitude,” according to the central bank’s policy statement.

Banxico – the central bank – said this represents greater risks to the price formation process and inflation expectations.

Chief emerging markets economist at Capital Economics, William Jackson, said Banxico would probably continue to raise the benchmark rate in 25 basis points increments, with the tightening cycle ending with the rate at 6.00%, Reuters reports.

“There’s little evidence that Banxico’s board has the appetite to increase the pace of tightening, as other central banks in Latin America have done,” Jackson said.

In regard to growth, Mexico’s central bank said preliminary data revealed the country’s economy contracted in Q3, but recovery should resume in Q4.

“An environment of uncertainty persists and slack conditions are anticipated, with significant differences across sectors,” Banxico stated.

At forthcoming monetary policy meetings, the central bank said its five-member board would scrutinise inflationary pressures and all factors that affected “the foreseen trajectory for inflation and its expectations.”

Banxico predicts 6.8% average annual inflation for Q4, surpassing a previous forecast of 6.2%. The core index meanwhile – which takes out certain volatile items – is seen at an average of 5.5% over the same period, compared to a previous view of 5.3%.

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