Mexico Monetary Policy August 2022

Mexico

Mexico: Banxico hikes again in August

August 11, 2022

On 11 August, the Governing Board of the Bank of Mexico (Banxico) opted to raise the target for the overnight interbank interest rate by 75 basis points to 8.50%, marking the fifth hike this year.

The Bank’s decision was part of an ongoing attempt to keep price pressures under control and stop inflation expectations from becoming de-anchored. Both headline and core inflation have risen further above the Bank’s 2.0–4.0% target range in recent months, and the Bank commented that inflation expectations for 2022 and 2023 had increased. Moreover, Banxico once again markedly revised up its own inflation forecasts for the coming quarters, and now sees headline inflation peaking at 8.5% in Q3 compared to 8.1% previously.

In its communiqué, the Bank suggested it would continue to raise rates ahead, although the language was more dovish than at the prior meeting. Banxico stated simply that it would “assess the magnitude of the upward adjustments in the reference rate for its next policy decisions based on the prevailing conditions.” Our panelists currently see over 100 basis points of extra tightening by year-end, although forecasts range from 50 to 175 basis points.

On the outlook, Itau Unibanco analysts said:

“Our end of year policy rate forecast is at 9.75%, with a 50-bp hike in the next meeting. While the magnitude (50-bp or 75-bp) of September’s policy rate hike will depend mostly on next Fed’s policy move, stubborn inflation increases the odds of one (or more) member voting for keeping the pace (75-bp) regardless of the Fed decision.”

The next monetary policy decision will be announced on 29 September.


Author:, Economist

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Mexico Monetary Policy September 2022

Note: Banxico target rate in %.
Source: Bank of Mexico (Banxico).


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