The Bank of México (Banxico) has lifted its benchmark interest by 75 basis points to 9.25%, the highest level since a new monetary policy regime was introduced in 2008 amid the Great Recession.

The five members of the central bank’s board voted unanimously to increase the overnight interbank rate by 0.75% at Thursday’s monetary policy meeting. It was the 11th consecutive meeting at which the key rate was lifted, and the third consecutive time that the board members settled on a 0.75% hike.

The decision comes a week after the United States Federal Reserve raised its benchmark rate by 75 basis points to a range of 3-3.25%.

In a statement announcing its latest decision, Banxico noted that inflation remains high both globally and in Mexico, and predicted “future [upward] adjustments” to its key rate.

“The accumulated inflationary pressures associated with both the pandemic and the military conflict [in Ukraine] continue affecting headline and core inflation, which in the first half of September registered annual rates of 8.76% and 8.27%, respectively, thus remaining at levels unseen in two decades,” the bank said.

“… The governing board evaluated the magnitude and diversity of the shocks that have affected inflation and its determinants, along with the evolution of medium- and long-term inflation expectations and the price formation process. It also considered the increasing challenges for monetary policy stemming from the ongoing tightening of global financial conditions, the environment of significant uncertainty, the inflationary pressures accumulated as a result of the pandemic and the geopolitical conflict, as well as the possibility of greater effects on inflation,” it said.

“Based on these considerations, and with the presence of all its members, the board decided unanimously to raise the target for the overnight interbank interest rate by 75 basis points to 9.25%.”

Banxico forecasts that headline inflation will begin to decline in early 2023 and continue to fall, reaching a level of 4% in the fourth quarter of next year. By the third quarter of 2024, the central bank anticipates a rate of 3.1%. Banxico has a 3% inflation target with tolerance of 1% in both directions.

The bank’s next interest rate decision is scheduled for November 10 with a final announcement for 2022 due on December 15. Additional 0.75% hikes following board meetings on those dates would leave the central bank’s key rate at 10.75% at the close of 2022.

Mexico News Daily