Bank of Mexico hikes interest rate by 50bps to 7%

The Bank of Mexico sets the benchmark interest rate at 7%, although Reuters reports that the board was not unanimous on rate decision with one member of the board voting to hike rates to 7.25%.

Preliminary information suggests that economic activity rebounded during the first quarter of 2022. Given the growing complexity in the environment for inflation and its expectations, taking more forceful measures to attain the inflation target may be considered.

The Mexican central bank announced that another four board members voted to hike the rate to 7.00%. For the next monetary policy decisions, the board will monitor thoroughly the behaviour of inflationary pressures and factors impacting foreseen path for inflation and its expectations.

An environment of uncertainty and ample slack conditions continues to prevail, although the latter narrowed compared to the previous quarter. In view of greater-than-anticipated pressures on inflation, forecasts for headline and core inflation were revised upwards up to the second and third quarters of 2023, however, convergence to the 3% target in the first quarter of 2024 is maintained.

The balance of risks for the trajectory of inflation within the forecast horizon remains biased to the upside and continues deteriorating. The central bank took into consideration increasing challenges posed by tightening global monetary and financial conditions, the environment of significant uncertainty, and greater inflationary pressures associated with geopolitical conflict.