Thursday, November 14, 2024

Central bank raises interest rate to 7.7%, biggest increase since 2008

The central bank has raised its benchmark interest rate by 75 basis points to 7.75%, the highest level since late 2019.

It was the first time since the introduction of a new monetary policy regime in 2008 that the Bank of México (Banxico) lifted its key rate by three-quarters of a percentage point. The decision, made at the governing board’s meeting on Thursday, followed 0.5% hikes at each of the previous four meetings. Banxico has now lifted rates at nine consecutive meetings.

In a statement, the bank noted that in the first half of June, headline and core inflation reached 7.88% and 7.47%, respectively, “remaining at elevated levels unseen in two decades.”

In addition to inflationary shocks stemming from the pandemic, Banxico said there were inflationary pressures associated with Russia’s invasion of Ukraine and strict lockdown measures imposed by China to slow the spread of the coronavirus.

In consideration of “the magnitude and diversity of the shocks that have affected inflation” and “the increasing challenges for monetary policy stemming from the ongoing tightening of global financial conditions,” among other factors, the board decided unanimously to raise the target for the overnight interbank rate by 75 basis points.

The bank said the board intends to continue raising the reference rate, foreshadowing another 0.75% hike if required by economic conditions.

Janneth Quiroz, deputy director of economic analysis at the Monex financial group, and Adrián Muñiz, who holds the same position at the brokerage firm Vector, both said that another 0.75% hike rate, or even a 100-basis-point one, is not out of the question in the near future. The bank’s future decisions will depend on inflation levels and monetary policy in the United States, they said.

The central bank predicted that headline inflation, which doesn’t strip out volatile food and energy prices, will increase to 8.1% in the third quarter before falling to 7.5% in Q4. It forecasts further declines in all four quarters of next year, with an anticipated headline rate of 3.2% at the end of next year and 3.1% in Q2 of 2024. Banxico targets 3% annual inflation with tolerance of 1% in both directions

With reports from Reforma and El Universal 

Have something to say? Paid Subscribers get all access to make & read comments.
Ontario, Canada Prime Minister Doug Ford standing at a podium with the logo of the Labourers International Union of North America giving a speech. Behind him are two men watching on

Ontario premier suggests Canada end free trade with Mexico

5
Accusing Mexico of helping China skirt heavy Canadian and U.S. tariffs, Ontario Premier Doug Ford is calling for an end to the USMCA.
A person shops at a local market in Mexico City.

Sheinbaum, business sector agree to lower basic food prices

1
“We want prices to come down for consumers, especially for those who don't have much,” Sheinbaum said Wednesday.
Germán Reyes Reyes, a former army captain who became interim head of the Chilpancingo Public Security Ministry on Sept. 30, was detained by state and federal security forces for the murder of Alejandro Arcos Catalán

Chilpancingo security chief arrested for mayor’s murder

1
The deceased mayor's decapitated body was found inside his pickup truck in the state capital of Chilpancingo, Guerrero, on Oct. 6.