The Bank of Mexico not only raised the interest rate this Thursday (which will remain at 7 percent), but also updated its inflation forecasts upwards.
By 2022, the institution expects the index to close at 6.4 percent, when in his previous forecast he expected it to end at 5.5. percent.
According to Banxico’s ‘calculations’, inflation will close this quarter at 7.6 percent; It will then go to 7 percent in the third quarter (July-September), and will end the year at 6.4 percent, if inflationary pressures do not worsen even more.
Inflation will be located at 5.3 percent in the first quarter of 2023 (previous estimate was 4.5 percent) and will return to Banxico’s target range (3 percent +/- one percentage point) in the second quarter of next year, according to forecasts.
In its monetary policy statement, Banxico’s Governing Board listed a series of risks that may affect the trajectory of inflation worseamong which are:
- Persistence of core inflation at high levels.
- External inflationary pressures derived from the pandemic.
- Greater pressures on agricultural and energy prices due to the geopolitical conflict.
- Exchange depreciation.
- Cost pressures.
“The Governing Board evaluated the magnitude and diversity of the shocks that have affected inflation and its determinants, as well as the risk that contaminate medium- and long-term expectations and price formation”, the institution noted.
This Thursday, Banxico raised its interest rate for the eighth time in a row, with which it was placed at 7 percent, a level not seen since February 2020.
The recovery of pandemic has caused an increase in consumer prices in Mexico and throughout Latin America, which has led to some of the most aggressive adjustment cycles in recent decades by the central banks of Brazil, Chile and Peru, which operate with inflation targets.
To Mexico’s credit, Banxico kept its key rate much higher than its regional peers during the pandemic, giving it a head start in tapering stimulus and room to adjust to the pace of Fed rate hikes.
With information from Guillermo Castañares