Bank of Mexico’s Overnight Interbank Rate Lifted Another 25 Basis Points to 6.75%

May 18, 2017

Mexican monetary authorities raised their key interest rate for the ninth time since December 2015. Like the prior tightening at end-March and the first one of this sequence, today’s was 25 basis points in size. The other six moves were by 50 basis points each. Cumulatively, the interest rate has now been increases 375 basis points.

Mexico was hit by the mother of external shocks, the election of a U.S. president blatantly hostile to the country’s very existence. ¬†Today’s released statement is upbeat about the outlook: domestic financial conditions, net exports and consumer spending seem to be improving and the peso has trimmed steep prior losses. But total inflation of 5.8% last month and core CPI of 4.7% are well above the 3% medium target and still haven’t crested. It’s the central bank’s task to ensure that above-target inflation not generated second-order price hikes based on rising inflation expectations. Negatively skewed risks to the forecast are less pronounced than they had been but still persist. That forces a preemptive policy bias toward restraint.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission. 

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