Wednesday, December 25, 2024

Bank of México raises interest rate to record 11%

Mexico’s central bank has lifted its benchmark interest rate by 50 basis points to a new record high of 11% after both headline and core inflation rose in January.

Bank of México (Banxico) board members voted unanimously in favor of a 50-basis-point hike at a monetary policy meeting on Thursday. The meeting took place just hours after the national statistics agency INEGI reported annual headline inflation of 7.91% in January and core inflation of 8.45%.

Bank of México facade

The rate hike, which followed a 50-basis-point increase in December, was double that predicted by most economists as well as double that announced by the United States Federal Reserve last week. It was the first time in seven monetary policy decisions that Banxico outpaced the Fed, and the unexpected move caused the Mexican peso to gain ground against the U.S. dollar.

The peso was trading at about 18.8 to the greenback on Thursday afternoon.

Banxico has now lifted its key rate by 700 basis points since the current tightening cycle began in June 2021. The rate is now at its highest level since the bank introduced a new monetary policy regime in 2008.

In a statement announcing its latest hike, Banxico said its governing board “considered the challenges stemming from the ongoing tightening of global financial conditions, the environment of uncertainty, the persistence of accumulated inflationary pressures and the possibility of greater effects on inflation, as well as the monetary policy stance already attained in this hiking cycle.”

“In particular, it deemed that, given the dynamics of core inflation, on this occasion it is necessary to continue with the magnitude of the reference rate adjustment of the previous policy meeting, in order to be in a better position to tackle a still complex inflation environment,” the bank said.

Banxico targets an inflation rate of 3% with tolerance of one percentage point in both directions.

It said Thursday that it expects inflation to converge to its target in the final quarter of 2024, but noted that the projection is subject to a range of risks including “pressures on energy prices or on agricultural and livestock product prices” and “exchange rate depreciation.”

The central bank anticipates headline inflation will drop below 5% by the end of 2023 before declining throughout next year to reach 3.1% in the fourth quarter of 2024.

Banxico said that its next upward adjustment to its interest rate “could be of lower magnitude” compared to that announced Thursday. Its board will hold its next monetary policy meeting on March 30.

The latest INEGI data shows that headline inflation rose 0.09 percentage points from 7.82% in December, while core inflation increased 0.1 points from 8.35%. The 7.91% headline inflation rate is the highest start-of-year rate since 2001.

Processed food, beverages and tobacco were 14.1% more expensive in January than a year earlier, while the cost of fruit and vegetables was 10.2% higher.

INEGI data also showed that meat prices rose 9.7% in the 12 months to January 2023, while those for non-food goods increased 7.5%. Services were 5.5% more expensive, while energy prices including those for fuel and electricity were up 3.4%.

Inflation has remained stubbornly high despite the central bank’s aggressive tightening cycle and efforts by the federal government to put downward pressure on prices.

However, headline inflation has eased since hitting a more than two-decade high of 8.7% in August and September of 2022.

Mexico News Daily 

Have something to say? Paid Subscribers get all access to make & read comments.
The project addresses a major cross-border pollution problem by treating the sewage flowing north from the Tijuana River.

Tijuana River cleanup takes major step forward

2
Imperial Beach in San Diego, just north of the Mexico-U.S. border, is one of the country's most polluted beaches due to sewage flow from the Tijuana River.
Ears of dried corn in a big pile

Mexico loses GM corn trade dispute with US

9
Mexico will have to modify its restrictions on genetically modified corn imports after a trade dispute panel sided with the United States.
Two photos, one of U.S. President-elect Trump and another of Mexican President Claudia Sheinbaum

Trump promises to designate Mexican cartels as terrorist organizations: Sheinbaum responds

57
President Sheinbaum responded with forceful rhetoric to the announcement, which would open the door to U.S. intervention in Mexico.