Bank of Mexico Tightens to Contain Inflation

November 16, 2018

The Bank of Mexico raised the overnight interbank rate by another 25 basis points, citing significant peso depreciation since the last policy review, concerns regarding the incoming administration’s policy intentions, above target inflation, indications of higher expected inflation, recent downgrades by some ratings agencies of Mexico’s debt rating outlook, and likely future increases in global interest rates. Mexico’s benchmark interest rate now becomes 8.0%. It had earlier been raised by 250 basis points in 2016, 150 bps in 2017, and this year by 25 basis points each in February and June. The latest vote to tighten monetary policy drew one dissent favoring a 50-basis point hike rather than the Governing Board majority’s preference for another 25-bp incremental rise. The last 50-basis point hike was done in February 2017, and the dissent suggests that more increases shouldn’t be ruled out, especially since officials aren’t predicting lower inflation next year.



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