Banco de México Raises Rates by 50 bps to Record High 10.50%, Hints at More Hikes

The Mexican Central Bank, Banco de México raised interest rates by 50 basis points to 10.50% at its December 2022 meeting, as expected. It was the 13th consecutive rate hike, adding to the 650bps of rate increases since the start of the bank’s tightening cycle in June. The Bank signaled that future decisions will be dependent on up-to-date economic data available. with the bank saying headline and core inflation forecasts were revised upwards. Five of the six board members voted in favor of the decision, while a lone member preferred a softer 25bps increase.

mexico central bank

The vote was not unanimous. Voting in favor of the decision were Victoria Rodríguez, Galia Borja, Irene Espinosa, and Jonathan Heath. Gerardo Esquivel voted in favor of raising the target for the overnight interbank interest rate by 25 basis points to 10.25%.


  • Global inflation remains high, while in some economies headline inflation decreased in response to lower pressures on food and energy prices
  • The Mexican peso continued showing resilience, although with some volatility.
  • Short-term interest rates increased while medium- and long-term ones decreased significantly.
  • The Mexican economy is anticipated to have continued recovering during the fourth quarter, although at a slower pace. Slack conditions are thus expected to continue diminishing.
  • November, headline inflation continued decreasing to a level of 7.80%, due to a reduction in its noncore component. Core inflation, on the contrary, continued trending upwards, reaching 8.51%. Both headline and core inflation were at levels below those of analysts’ expectations. Expectations for headline inflation for 2022 and 2023 were revised downwards, while those for core inflation were again adjusted slightly upwards. Those for the medium and long terms remained stable, although above target.
Mexico Interest Rate

These forecasts are subject to risks.

Forecasts for headline inflation were revised downwards for the first two quarters, and then marginally
upwards until the fourth quarter of 2023, due to a slight increase in the trajectory for core inflation. Inflation is still projected to converge to the 3% target in the third quarter of 2024

On the upside:

On the upside:

  • Persistence of core inflation at high levels.
  • External inflationary pressures associated with the pandemic;
  • Greater pressures on agricultural and livestock product prices and in energy prices due to the ongoing geopolitical conflict;
  • Exchange rate depreciation;
  • Cost-related pressures.

On the downside:

  • A greater-than-anticipated slowdown of the world economy.
  • Adecline in the intensity of the geopolitical conflict;
  • A better functioning of supply chains; iv) a lower
  • Pass-through effect from some cost-related pressures;
  • A larger-than-anticipated effect from the Federal Government’s measures to fight elevated prices.

Although some shocks show signs of subsiding, the balance of risks for the trajectory of inflation within the forecast horizon remains biased to the upside.

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 considered the challenges for monetary policy stemming from the ongoing
tightening of global financial conditions, the environment of uncertainty, the inflationary pressures
accumulated as a result of the pandemic and the geopolitical conflict, the possibility of greater effects on
inflation, and the monetary policy stance already attained in this hiking cycle. Based on these
considerations, the Board decided by majority to raise the target for the overnight interbank interest rate
by 50 percentage points to 10.50%. With this action, the monetary policy stance adjusts to the trajectory
required for inflation to converge to its 3% target within the forecast horizon.

The Board will thoroughly monitor inflationary pressures as well as all factors that have an incidence on
the foreseen path for inflation and its expectations. This, in order to set a policy rate that is consistent at
all times, with both the orderly and sustained convergence of headline inflation to the 3% target within
the time frame in which monetary policy operates as well as with an adequate adjustment of the economy and financial markets. The Board considers it will still be necessary to raise the reference rate in its next monetary policy meeting. Subsequently, it will assess if the reference rate needs to be further adjusted as well as the pace of adjustments based on the prevailing conditions.

Source: Banco De Mexico

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