Bank of Mexico

June 22, 2017

Mexico’s key central bank interest rate was raised for the seventh time since September and the tenth time since December 2015. Over the entire year and a half span, the rate has been lifted from 3.0%, the level between October 2014 and December 2015, to 7.0%. Today’s increase had been expected. CPI inflation of 6.3% has been drifted up by the peso’s depreciation last year and hasn’t been as high as now since early 2009. Analysts coming into today’s meeting had expected more increases to follow, but a statement¬†released after the decision raises some doubt about that assumption. The final sentence says

The Board considers that with the increase announced today, and taking into account the transient nature of the shocks that have impacted the inflation figures, the time horizon in which the channels of transmission fully operate of monetary policy, as well as the forecasts on the economy, the level reached in the reference rate is congruent with the process of efficient convergence of inflation to the target of 3.00 percent. However, given the risks that are still present, the board will be vigilant to ensure that a prudent monetary stance is maintained.

The main reason for higher inflation is the weaker peso that U.S. President Trump’s hostility to Mexico during the U.S. election caused. Since Trump took office, however, the peso has recovered 21.4% against the dollar.

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



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