Banco de México Raises Rates Again With Inflation Risk To Mexican Economy

The Mexican Central Bank, Banco de México raised interest rates by 25 basis points to 5.00% with the bank saying headline and core inflation forecasts were revised upwards. Last month the Banco Central do Brasil hiked its benchmark interest rate by 150bp to 7.75%

mexico central bank

The Mexico central bank Governing Board increased the target for the overnight interbank interest rate by 25 basis points to 5.00%.

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 4.75% was Gerardo Esquivel

Highlights

  • Sees end of 2021 inflation at 6.8% core inflation at end of 2021 at 5.5%
  • Balance of risks for the trajectory of inflation within the forecasts rise in deteriorated remains bias to the upside
  • Annual inflation variations are expected to decrease, particularly for one year and beyond, and converged to the 3% target by the end of the forecast horizon
  • Shocks that have increased inflation are largely considered to be transitory

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

From The Traders Community News Desk

Leave a Reply

Your email address will not be published.