More rate hikes on the way, says Banxico deputy governor

05 Oct 2021

Bank of Mexico’s deputy governor Jonathan Heath has announced that the rate increase cycle isn’t over, and one or two more hikes are likely.

The central bank, known as Banxico, raised its benchmark interest rate by 25 basis points to 4.75% last Thursday, after a vote by the governing board by four to one.

As part of a Reuters interview on Monday, Heath commented: "This is my personal opinion, that the cycle of hikes is not over yet, that perhaps we're not too far from the end. Of course, this will depend much on the evolution of many different indicators.

"I think that we should still maybe see one or two more (rate) hikes," he added.

Deputy Governor Gerardo Esquivel, who last week voted to hold the rate at 4.50%, later stated that interest rate hikes in the current context are "inefficient" and "can be counter-productive".

Esquivel said the policy decisions could be viewed as signals the inflation has a comparatively permanent character "to which an upward cycle of the interest rate would be responding."

The central bank has increased the key rate by a quarter of a percentage point at each one of the previous three policy meetings.

"In that sense, I think the majority of us are in agreement because what we are seeing ... are increases in inflation in practically all the different sectors," said Heath.

Moreover, consumer prices in Mexico during the first half of September increased 0.42% to hit an annual inflation rate of 5.87%, surpassing August’s 5.59% and way over Banxico's target rate of 3% plus or minus one percentage point, Reuters reports.

Heath added annual headline inflation for the entire month of September was potentially "very near" 6%, whilst core inflation could be close to 5%.

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