Mexico’s central bank increased its benchmark interest rate three-quarters of a percentage point to 8.5% Thursday, following the US Federal Reserve’s own action, as inflation in the Latin-American country bounces to a 20-year high.
For the tenth time in as many meetings, Banxico’s five-member board voted to increase the interest rate, this time by 75 basis points.
In a statement, the board said it would “assess the magnitude of the upward adjustments in the reference rate for its next policy decisions based on the prevailing conditions.”
“Inflationary pressures derived from the pandemic and the war (in Ukraine) continue to affect general and underlying inflation,” the central bank stated.
The new key interest rate is the highest it has been in sixteen years.
The unanimous vote comes as consumer prices rose 8.15% year on year last month, according to INEGI, Mexico’s national statistics agency.
INEGI released official inflation data for July on Tuesday.
“In June 2022 and with seasonally adjusted figures, the Monthly Indicator of Industrial Activity (IMAI) increased 0.1% at a monthly rate,” the agency wrote.
“At an annual rate and with seasonally adjusted series, the IMAI increased 3.8% in real terms last June,” the report concluded. “By sector of economic activity, Manufacturing industries grew 5.2%; Generation, transmission, and distribution of electrical energy, supply of water and gas through pipelines to the final consumer, 3.8% and Mining and Construction, 2.2 percent.”
Some analysts predicted that the interest rate would reach 9.5% by the end of the year, according to Reuters, with annual core inflation expected to hit 7.6%.
Others were more optimistic.
Francisco Cervantes Díaz, the head of Mexico’s Business Coordinating Council, discussed the rate hike, stating, “This was expected, to fight volatility and high prices in some sectors. The good news is that inflation is expected to close 2023 at 3.2%.”