The Mexican Central Bank, Banco de México raised interest rates by 25 basis points to 4.75% with the bank saying headline and core inflation forecasts were revised upwards. Last week the Banco Central do Brasil hiked its benchmark interest rate by 100bp to 6.25%
The Mexican Central Bank, Banco de México raised interest rates by 25 basis points to 4.75% with the bank saying headline and core inflation forecasts were revised upwards. Last week the Banco Central do Brasil hiked its benchmark interest rate by 100bp to 6.25%.
The Mexico central bank Governing Board increased the target for the overnight interbank interest rate by 25 basis points to 4.75%.
The vote was not unanimous, voting in favor of the decision were Alejandro Díaz de León, Irene Espinosa, Galia Borja and Jonathan Heath. Voting in favor of leaving the target for the overnight interbank interest rate unchanged at 4.50% was Gerardo Esquivel
- Global economic activity continued to recover, although at a slower pace and heterogeneously across countries, associated with vaccine availability, the evolution of the pandemic, and spending programs.
- Global inflation continued increasing due to pressures on commodity prices, base effects, bottlenecks in production, and to stimulus spending and its recomposition towards merchandise.
- The central banks of the main advanced economies have maintained the monetary accommodation, although some of them are already expecting to diminish it, while those of several emerging economies continue reducing it.
- Among key global risks are those associated with the pandemic, inflationary pressures, and adjustments in monetary and financial conditions.
- In domestic financial markets, the volatility of the peso exchange rate and interest rates have increased.
- The recovery of the Mexican economy continued during the third quarter and is expected to endure for the rest of the year and 2022.
- Uncertainty about the pandemic persists and slack conditions are anticipated, with significant differences across sectors. Global inflationary pressures and bottlenecks in production continue affecting headline and core inflation, which during the first fortnight of September registered annual variations of 5.87% and 4.92%, respectively.
- Headline and core inflation expectations for 2021 increased again, those for the next 12 months and for 2022 also rose, while those for longer terms have remained stable at levels above the target.
- Headline and core inflation forecasts were revised upwards compared to those previously released . Considering the nature of the shocks that have affected them, the larger increases correspond to the short term.
- Annual headline and core inflation projections are expected to decrease, particularly for one year and beyond, and to converge to the 3% target by the end of the forecast horizon.
These forecasts are subject to risks.
On the upside:
- i) external inflationary pressures;
- ii) cost-related pressures;
- iii) core inflation persistence;
- iv) exchange rate depreciation; and
- v) increases in agricultural and livestock product prices.
On the downside:
- i) a widening of the negative output gap;
- ii) additional social distancing; and
- iii) exchange rate appreciation.
The balance of risks for the trajectory of inflation within the forecast horizon is biased to the upside. Although the shocks that have increased inflation are expected to be transitory, due to their variety, magnitude, and the extended horizon over which they have affected it, they may pose risks to the price formation process and to inflation expectations
In order to avoid such risks, it was deemed necessary to reinforce the monetary policy stance by adjusting it to the trajectory required for inflation to converge to 1 its 3% target within the forecast horizon.
Source: Banco de México
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