Money in Mexico

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Mexico - Money

Banxico delivers fifth consecutive rate hike in December

On 16 December, 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 5.50%. The move marked the fifth consecutive hike, and meant rates have now risen 125 basis points since the start of the year.

The Bank’s decision was part of an ongoing attempt to keep inflation under control and stop inflation expectations becoming de-anchored. Both headline and core inflation were at roughly two-decade highs in November amid ongoing global supply bottlenecks and elevated commodity prices, while both the market’s and Banxico’s inflation expectations for the coming year were revised up. Moreover, the Federal Reserve’s more hawkish monetary stance risks putting additional downward pressure on the peso—which has already wilted somewhat in recent months—and could thus further fan inflation. The latest rate hike from Banxico should offset some of this pressure.

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

Cristobal Arias Ortega, head of Arimato Metrics, commented:

“Going forward, we expect persistent supply chain disruptions, the tightening of global financial conditions (amid Fed rate increases) and broad exchange rate factors to remain a source of pressure to headline and core inflation. Thus, our view that Banxico’s policy rate will reach 6.50% by the end of 2022 still holds, and we are now allocating a higher likelihood of another 50bps hike in the first quarter of 2022.”

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

FocusEconomics analysts expect the target rate to end 2022 at 5.93% and 2023 at 6.11%.

Mexico - Money Data

2015   2016   2017   2018   2019  
Money (annual variation in %)5.1  6.8  8.3  4.7  7.6  

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Mexico Money Chart

Mexico Money
Note: Annual variation of M2 in %.
Source: Mexico Central Bank (Banxico) and FocusEconomics calculations.

Mexico Facts

Value Change Date
Bond Yield6.87-0.24 %Dec 31
Exchange Rate18.93-0.29 %Jan 01

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