Friday, April 12, 2024

Bank of México raises interest rate to 10.5%

The Bank of México (Banxico) raised the interest rate by 50 basis points to 10.5% on Thursday, the first time in seven months that Banxico has slowed its rate increases.

The decision signals a slight easing of the rate of increase, after the central bank raised the rate by 75 basis points at each of the last four consecutive meetings.

The U.S. Federal Reserve also raised its interest rate by 50 basis points on Wednesday, to a target range of 4.25-4.5%.

Four of the five Banxico board members supported the 50 point increase. Gerardo Esquivel, who has taken a more conservative approach in the past, supported a 25 basis point increase. The board indicated that it will also raise rates during the next meeting, which will take place in January. It noted that there may be an increase of at least 75 more basis points in 2023, as well as stagnant economic growth and rising unemployment. The average unemployment rate is expected to rise to 4.6% in 2023, compared to the current rate of 3.7%.

“The Governing Board believes it will still be necessary to increase the reference rate at the next meeting. Going forward, it will assess the need for additional adjustments in the reference rate and their magnitude in accordance with the prevailing circumstances,” the central bank said in its monetary policy statement.

Headline inflation has slowed, reaching 7.8% in November, its lowest level since May. At the same time, however, core inflation continued to rise, reaching 8.51%. This surpasses last month’s high of 8.42%, which was the highest level seen in 22 years.

In total, Banxico has raised its benchmark by 650 basis points since June 2021.

In its economic projections, the central bank said it anticipates an inflation rate of 3.1% in 2023, which is slightly higher than the 2.8% it previously estimated. In 2024, it anticipates a 2.5% inflation rate followed by 2.1% in 2025.

With reports from El Financiero, Reuters and Reforma

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