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The Bank of Mexico raises the interest rate to 10.5%, but moderates the pace of the rise

2022-12-15T19:54:13.913Z


The institution approves an increase of 50 basis points due to the reduction in inflation and in line with the latest decision of the Federal Reserve


File photo of the headquarters of the Bank of Mexico, in the center of Mexico City.Susana Gonzalez (Bloomberg)

The Bank of Mexico begins to loosen the nuts.

The institution has voted this Thursday an increase of 50 basic points in the interest rate, leaving it at 10.5%.

Although the rate stands at historical levels, the decision breaks the streak of four consecutive increases of 75 basis points.

The winds blow in favor of moderating the pace of the climbs.

The US Federal Reserve, the mirror in which the Mexican institution sees itself, has already slowed down in its latest decision, and inflation continues to fall.

All in all, the Governing Board is cautious and has anticipated that it will raise the rate again at its next meeting in February.

Thereafter, "it will assess the need for additional adjustments."

The Governing Board has approved by four votes in favor the thirteenth increase since June of last year.

Deputy Governor Gerardo Esquivel, for his part, has proposed an increase of 25 basis points.

To explain the decision of the majority, the institution has highlighted in a statement "the environment of uncertainty" in the global economy, as well as the inflationary pressures derived from the pandemic and the conflict in Ukraine and the possibility that these have a greater impact in the future.

Even so, Banco de México sees signs of improvement and has revised downward the inflation forecasts for the end of the year and the start of the next.

The institution expects inflation to return to the 3% target for the third quarter of 2024 and has left open the possibility of a change in monetary policy starting next year.

“The Governing Board considers that it will still be necessary to increase the reference rate at the next meeting.

Going forward, it will assess the need for additional adjustments in the reference rate and their magnitude in accordance with the prevailing circumstances," the statement reads.

This Thursday's decision is based on a drop in general inflation, which closed November at 7.8% annually.

This is the lowest figure in six months and it is the second consecutive month with decreases.

Onions and green tomatoes, for example, registered falls of 23% and 15% between October and November.

However, the price index remains far from the central bank's target of 3%.

On the other hand, underlying inflation, the one on which monetary policy seeks to have an impact and which excludes the most volatile products, continues to be a cause for concern.

In November, it stood at 8.5% annually, its highest level in two decades.

Until now, Banco de México has followed the path set by the Federal Reserve to maintain the difference between the interest rates of both countries and avoid capital flight.

The Fed announced its eighth hike so far this year on Wednesday, but decided to slow the rate of hikes.

Instead of an increase of 75 basis points, as he had been doing in his last four decisions, he bet on one of 50 points to reach a range of 4.25%-4.5%, after inflation fell to 7 .1% per year in November.

Even so, the US central bank expects the rate to exceed 5% in 2023.

Opinions are divided within the Board of Governors of Banco de México on the advisability of calculating the Fed's increases. Deputy Governor Gerardo Esquivel has been arguing for some time that the Mexican central bank moderates its increases for fear of slowing down economic growth .

His colleague Jonathan Heath also opened up that possibility last week.

“We think we can maybe start slowing down now, but keep increasing it because we're getting closer to what I think could be a terminal rate,” he told an event.

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Source: elparis

All news articles on 2022-12-15

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