How long will economic recovery take for Mexico?
4:00
(CNN Spanish) --
The Central Bank of Mexico raised its benchmark interest rate on Thursday for the ninth time in a row to take it to 7.75% and warned that it intends to continue raising it and, if necessary, would do so with "same forcefulness," amid worsening inflation expectations.
The decision, taken unanimously by the entity's Governing Board, was in line with the market that expected an unprecedented increase of 75 basic points (bp) in the cost of credits, according to a Reuters poll.
Weeks ago, several members of the Board had warned that the increase of 75 bp would be on the table for the decision announced on Thursday in order to give a more forceful message of Banxico's commitment to fight inflation.
Thus, the largest hike by the Bank of Mexico since 2008, when it began to implement its monetary policy through the target interest rate, took place.
His last four previous hikes had been 50bp each.
The Bank of Mexico (Banxico) cited that the balance of risks for inflation has a "considerable" upward bias, and raised its forecasts for headline inflation in the fourth quarter of 2022 to 7.5% and core inflation to 6.8%.
Earlier, official figures showed that local inflation accelerated more than expected in the first half of June, to 7.88%.
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"In the following decisions, the Governing Board intends to continue increasing the reference rate and will assess acting with the same forcefulness if required," the entity said in a statement.
Inflation in Mexico rises more than expected in the first half of June to 7.88%
He added that the magnitude and diversity of the shocks that have affected inflation and its determinants were evaluated, as well as the risk that medium- and long-term expectations and price formation are contaminated.
Notwithstanding the upward adjustments in the inflation forecasts, Banxico assured that convergence to the 3% target is still expected to be reached in the first quarter of 2024.
Among the upside risks for headline inflation, the bank cited the persistence of core inflation at high levels;
external inflationary pressures derived from the coronavirus pandemic and greater pressures on agricultural and energy prices due to the war between Russia and Ukraine.
"Further tightening of US monetary policy, a prolonged duration of the Russian invasion of Ukraine, and supply chain disruptions from China's coronavirus measures will result in further rate hikes from Banxico in the near term." , said Carlos Morales, director of sovereign risk for Latin America at Fitch Ratings.
"We project the rate to reach 8.5% by the end of 2022," he added.