Banxico accelerates the pace of its interest rate

Royalty free photo

Mexico’s central bank accelerated the pace of its interest rate increases on Thursday, June 23rd. delivering the country’s biggest ever hike and signaling willingness to keep boosting rates at the same pace if needed.

(BANXICO).- The board of Banxico unanimously voted to raise its key rate by 75 basis points to 7.75%, as expected by all 27 economists in a Bloomberg survey. The increase, the largest since the bank adopted an inflation targeting system in 2008, matched the Federal Reserve’s hike last week as Banxico tends to follow its US counterpart to avert abrupt capital outflows.

Early-June data published Thursday showed annual inflation running at a 21-year high, helping explain the central bank’s more hawkish message.

“For the next policy decisions, the Board intends to continue raising the reference rate and will evaluate taking the same forceful measures if conditions so require,” the five-member board wrote in a statement accompanying the decision.

Inflation has accelerated steadily since Latin America’s second-largest economy exited the worst of the pandemic last year and, as in other countries, was given an extra push with Russia’s invasion of Ukraine in February. The central bank started tightening monetary policy a year ago, initially with small, 25 basis-point increases, and since December has doubled that pace, without managing to tame the price spike.

“The statement is straightforward: the 75-point hike was not a one-off but a change in normalization pace, and we should expect more hikes of this magnitude,” said Pamela Diaz Loubet, Mexico economist at BNP Paribas. “The unanimous decision and the clear forward guidance enhance Banxico’s more reactive monetary policy function.”

TYT Newsroom



Comments

comments