The Bank of Mexico (Banxico) raised its benchmark interest rate by 50 basis points as planned, to 7.0%, but warned that it may take firmer measures to reach the inflation target.
“Given the more complex inflation outlook and projections, it will be considered that it will act more aggressively to achieve the inflation target,” Bancico said in its announcement.
In addition, the monetary authority raised its inflation forecast for this year, and now expects that in the fourth quarter it will be at 6.4 percent, from 5.5 percent it had previously estimated and indicated that the risks are to the upside.
“The balance of risks regarding the expected path of inflation on the forecast horizon remains biased to the upside and continues to deteriorate,” the central bank said.
Governor Victoria Rodriguez as well as Governors Galia Borja, Jonathan Heath and Gerardo Esquivel voted for a 50-point increase, while Deputy Governor Irene Espinosa voted for a 75-point increase.
Increases will speed up
For analysts, the warning of more aggressive central bank action increases the likelihood of a 75 basis point hike in the next monetary policy announcement, and they also consider the tone to be as high as 9 percent on average near the end. from the anus.
Victor Sega, chief economist at Valmex, noted that the increases could be sharper, due to the tone of the rhetoric displayed by the monetary authority.
“In our view, this confirmation points to a 75 basis point increase in the next monetary policy announcement, scheduled for June 23, and the subsequent complex path that could lead to a closing of the funding rate this year at 9 percent, and possibly 9.25 percent,” he said.
Alberto Ramos, chief Latin American economist at Goldman Sachs, highlighted Banqueco’s hawkish tone, noting that another 50 basis point increase was likely at the June meeting, but added that “there is an increased risk of 75 basis points and, in general, a cycle deeper than the increases in 2022.
To the rhythm of the Fed
In the following meetings, the board will continue in 50 point increments, Alejandra Marcos, chief economist at Intercam, said, adding that the United States Federal Reserve (Fed) has accelerated the restrictive pace of monetary policy, which directly affects the actions of Mexico’s central bank.
Joel Vergne, chief economist at Out of the Box Economics, agreed that the Fed’s decisions will be the basis for Banxico’s actions, at least in those that follow.
Yesterday, Federal Reserve Chairman Jerome Powell said a soft landing was expected for the economy, with inflation returning to its 2 percent target, but added that achieving that would be “very difficult” and that the process of doing so “will involve some pain…”
“The question of whether or not we can implement a soft landing may in fact depend on factors we have no control over,” he said, referring in particular to geopolitical events and supply chain bottlenecks.
The peso recovered after Banxico’s announcement, and although down 0.20 percent on the day, it closed at 20.3257 units, below the daily maximum of 20.4739 units.
With information from Rafael Mejia and Bloomberg.