With inflation running at higher than targeted levels the Bank of México raised its benchmark interest rate yesterday by 50 basis points to 6.25%, the highest in nearly eight years.
Annual inflation reached 4.72% last month, the highest in more than four years, fueled by the January 1 fuel price increases that hiked the price of gasoline by as much as 20%. But the increase over December’s figure of 3.36% was the biggest in 21 years.
The central bank said it raised rates to avoid “consumer price contagion” after the gas price hike and to hold down inflation. It said the outlook for growth and inflation had worsened but the impact of higher gas prices was likely to be temporary.
The bank’s move was in line with analysts’ expectations. The benchmark interest rate was raised five times last year to counter inflationary pressures brought on by a weak peso as it attempted to keep inflation in line with its target range of 2-4%.
Some economists are forecasting inflation will reach as much as 5.32%, Bloomberg reported yesterday.