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Mexico Monetary Policy July 2022

Mexico: Banxico hikes again in June; further hikes to come

On 23 June, 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 7.75%, marking the ninth consecutive hike and the fourth this year. As a result, rates are now above their pre-pandemic levels.

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 so far this year. Moreover, Banxico once again markedly revised up its own inflation forecasts for this year, and now sees headline inflation peaking at over 8% in Q3.

In its communiqué, the Bank toughened its language, for the first time explicitly stating that rates will rise further going forward and that it was prepared to take additional “forceful measures” to tame price pressures. Our panelists currently see multiple rate hikes before the end of the year.

On the outlook, Itau Unibanco’s Julio Ruiz said:

“The central bank will likely hike its policy rate by 75 bps (August 11) in the next meeting and further increases of the same magnitude can´t be ruled out, given stubborn inflation and a hawkish Fed. Our end of year policy rate forecast stands at 9.25%.”

The next monetary policy decision will be announced on 11 August.

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