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Mexico Monetary Policy September 2022

Mexico: Banxico hikes by 75 basis points in September

On 29 September, 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 9.25%, marking the third consecutive 75 basis-point hike.

The Bank’s decision was driven by rising headline inflation, core inflation and inflation expectations. Moreover, Banxico revised up its own headline and core inflation forecasts, and now does not expect either indicator to converge to within the 2.0–4.0% target range until 2024.

In its communiqué, the Bank suggested further rate rises were in the pipeline, reiterating 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.

Giving their forecasts, Itau Unibanco analysts said:

“The balance of risks for inflation remains significantly biased to the upside. […] We increased our terminal policy rate estimate to 11.00% (previously we expected it at 10.25%). A more concerned board on inflation outlook and a hawkish Fed led us to increase our policy rate forecast to 10.50% for the end of this year, with the central bank keeping its 75-bp rate hike pace in its November meeting, while for next year we expect the policy rate to reach 11.00% in 1Q23.”

The next monetary policy decision will be announced on 10 November.

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