Mexican Overnight Interbank Rate Lifted to 6.0% from 5.5%

February 10, 2022

Two developments prompted policymakers at the Bank of Mexico to implement their sixth interest rate hike since last June: high inflation and expectations that the U.S. federal funds rate target will be increased next month. One year ago in February 2021, Mexico’s central bank policy rate had actually be cut by 25 basis points to 4.0%, but a sequence of 25-basis point increases in June, August, September and November plus a 50-basis point hike in December followed. CPI inflation in Mexico ended 2020 at a 7-month low of 3.15%. It had been double that and double the medium-term target of 3.0% for the last four reported months, including 7.07% last month. A statement explaining today’s action revises the projected quarterly path of inflation through 1Q 2023 upward by 0.1 to 0.5 percentage points. Not until the second quarter of next year does the new forecast of core inflation dip below 3.0%, and total projected CPI inflation is at 3.1% even in the final quarter of that year.

The economic performance in Mexico currently is a difficult one for officials to be forced into prioritizing inflation reduction. Mexican real GDP decline in both quarters of the second half of 2021, and one policymaker dissented from the committee’s decision, preferring a rate hike this month of only 25 basis points.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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