Another Bank of Mexico Policy Rate Hike

June 24, 2022

The Bank of Mexico’s overnight interbank rate was lifted by 75 basis points to 7.75%, matching market expectations and also the recent incremental tightening of the federal funds rate. 7.75% constitutes the Mexican policy rate’s highest elevation since shortly before the pandemic’s onset. The rate’s pandemic low of 4.0% occurred between February and June of last year. As in the United States, Mexican authorities raised the incremental magnitude of tightening, having hiked the rate previously by 50 basis points in May, March, February, and December and by 25 bps in the first four increases of the current tightening cycle. The central bank’s released statement notes that during the first half of 2022 ” headline and core inflation registered annual variations of 7.88% and 7.47%, respectively, remaining at elevated levels unseen in two decades… Medium- and long-term expectations for headline inflation were revised slightly upwards and those for core inflation remained stable, although at levels above the target.” Looking ahead, officials plan to set a policy rate that is consistent at all times with the trajectory needed to facilitate the orderly and sustained convergence of headline inflation to the 3% target within the time frame in which monetary policy operates as well as an adequate adjustment of the economy and financial markets.” The hope is this will happen by 1Q 2024, and it will necessitate more methodical rate hikes at the next few scheduled policy reviews.

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

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