Thursday, June 20, 2024

Bank of México raises benchmark interest rate to 6%

Citing significant and long-lasting inflationary pressures, the central bank has raised its benchmark interest rate by 50 basis points to 6%.

Thursday’s Bank of México (Banxico) board meeting was the sixth consecutive meeting at which the rate was raised. The 0.5% increase followed a 50-basis-point hike in December.

Presiding over her first board meeting, new Banxico Governor Victoria Rodríguez Ceja voted for a 0.5% hike, as did three of the other four board members. Gerardo Esquivel was the odd one out, voting for a second consecutive time for a 0.25% increase.

In supporting a half-point hike, Rodríguez “batted away some investor concern that she would change the balance of the board toward a more dovish approach,” Bloomberg reported.

Banxico said in a statement that inflation continued increasing worldwide in the fourth quarter of 2021 due to “pressures originated by bottlenecks in production, the reallocation of spending towards merchandise, the high levels of food and energy prices, and the recovery of certain services.”

“… Inflationary pressures have been greater and have lasted longer than anticipated. In January, annual headline and core inflation were 7.07% and 6.21%, respectively,” the central bank said.

It said that the balance of risks for the trajectory of inflation within the forecast horizon remains biased to the upside.

The bank cited five upside risks: external inflationary pressures; cost-related pressures; persistence of core inflation at high levels; exchange rate depreciation; and increases in both agricultural and livestock product and energy prices.

It cited three downside risks: a greater-than-expected effect from the negative output gap — which occurs when actual output is less than what an economy could produce at full capacity; social distancing measures; and exchange rate appreciation.

Banxico said its governing board had “evaluated the magnitude and diversity of the shocks that have affected inflation and its determinants, along with the risk of medium- and long-term inflation expectations and price formation becoming contaminated, as well as the additional challenges posed by the ongoing tightening of global monetary and financial conditions.”

The Banxico board will next meet on March 24.

Mexico News Daily 

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