Bank of Mexico Raises Overnight Interbank Rate by Greater-than-Expected 50 Basis Points

December 16, 2021

The four previous rate hikes in June, August, September and November had been all 25-basis point changes, and analysts had assumed a similar increment. The rate was cut by three percentage points in 2020 and topped off by a 25-basis point reduction to 4.0% in February of 2021. The vote was not unanimous, as one of the five policymakers favored a hike today of 25 basis points. The switch to a more aggressive rate hike was motivated not only by rising inflation around the world and in Mexico, according to a released statement. In light of the belief that price expectations are the dominant driving force of actual future inflation, Rising inflation expectations played a key role in today’s decision. Officials revised the projected path of inflation through 1Q 2022 upward and cited a worrisome upside creep in indicators of headline and core inflation. Future rate decisions will be data driven with the goal of converging inflation on the 3% target by the end of the forecasting time frame. In the year to November, headline and core inflation was 7.4% and 5.7%, well above target.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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