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Mexico Monetary Policy March 2022

Mexico: Banxico delivers seventh consecutive rate hike in March

On 24 March, the Governing Board of the Bank of Mexico (Banxico) opted to raise the target for the overnight interbank interest rate by 50 basis points to 6.50%, marking the seventh consecutive hike and the second such hike this year.

The Bank’s decision was part of an ongoing attempt to keep inflation under control and stop inflation expectations from becoming de-anchored. Both headline and core inflation have been running well above the Bank’s 2.0–4.0% target range for some months now. Moreover, Banxico commented that both its own inflation forecasts and those of the market had increased again—likely in part due to the war in Ukraine and the knock-on effect on global commodity prices. The Bank does not see a return to the target range until 2023.

In its communiqué, Banxico did not provide explicit guidance on future rate movements, but stated that it would “monitor thoroughly the behavior of inflationary pressures” going forward. Our panelists anticipate that further monetary tightening is highly likely ahead in order to dampen inflation.

Cristobal Arias Ortega, head of Arimato Metrics, said:

“Government interventions have mitigated the impact of higher energy costs on domestic gasoline prices. However, higher commodity prices seem to be expanding to other goods in the consumption basket that rely on agricultural commodities. Finally, the ongoing tightening of the Fed’s funds rate will remain an additional source of pressure for the Mexican peso. In our view, Banxico will continue to hike rates for the rest of the year until the inflation rate shows clear signs of cooling off, possibly from the second half of this year. For now, we expect the Bank to increase its policy rate at least by another 100bps throughout 2022.”

The next monetary policy decision will be announced on 12 May.

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