Bank of Mexico Tightens

February 8, 2018

Mexico’s overnight interbank facility rate was lifted again, this time by 25 basis points to 7.5%. Today’s action is the twelfth increase dating back to December 2015, prior to which the policy rate had been at 3.0%. This progressive restraint is meant to anchor medium-term and long-term inflation expectations in the face of unforeseen shocks emanating from the election of U.S. President Trump, a rise in oil and food costs, and sharp peso depreciation during 2015-16. Mexican monetary officials are taking nothing for granted, believing that there is no alternative to a prudent approach. NAFTA may collapse. A new peso slide could occur. Interest rate hikes by the Fed and other advanced economy central banks could put emerging economies at risk to heavier capital outflows. Inflation in Mexico dropped from 6.8% in December to 5.5% last month, and the baseline inflation forecast is more favorable than an overall picture that considers risks.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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