Bank of Mexico Officials Implement Second Straight 25-Basis Point Hike of Overnight Interbank Rate

August 12, 2021

The 25-basis point interest rate increases in June and now reverse cuts last February and September, and the new rate level of 4.5% becomes the highest in a year but well below the pre-pandemic level of 7.25%. A statement from the Bank of Mexico foresees a danger of inflation tracking above its baseline forecast because actual inflation has risen more sharply than assumed and is taking longer to crest than was expected. Total CPI inflation had climbed to 5.8% by July, almost twice the 3% target, and the statement unveils a higher projected end-2021 inflation level of 5.7% than previously anticipated. Today’s vote was narrowly split at 3-2 between a cut of 25 basis points or leaving the rate at 4.25%. Private analysts, nevertheless, widely believe that there will be one or more rate hikes during the remainder of 2021.

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