Banxico braces for faster-than-expected fed hikes

Victoria Rodriguez Ceja

The U.S. will likely tighten monetary policy faster than previously expected, triggering knock-on effects in Mexico, central bank Governor Victoria Rodriguez Ceja said on Thursday, April 21st.

Fed hikes “will probably be greater and faster than anticipated, which implies an additional challenge for monetary policy in our country,” Rodriguez said in a senate hearing on Thursday.

The bank, known as Banxico, traditionally follows Fed rate increases to stop abrupt outflows of capital from Mexico. The Fed hiked by a quarter percentage point when it began its tightening cycle in March and many traders now expect a half-point rise in its next two meetings.

The Fed’s Bank of San Francisco President Mary Daly said on Thursday that a “couple” of half-point increases are likely in future meetings.

Rodriguez said the board will move decisively to bring inflation to its 3% target, down from a 21-year high of 7.45% as of March. The bank sees inflation hitting its target in early 2024, she said, its projection unchanged since its last rate decision in March.

Four Decades

“Central banks including Mexico are facing the most difficult environment of the past four decades,” Rodriguez said.

The bank has lifted its key rate to 6.5% with seven consecutive hikes, including two half-point hikes taken since Rodriguez became its first female governor in January.

While the country’s inflation outlook has deteriorated, the Mexican peso has absorbed external shocks well, Rodriguez said. She underlined the importance of the bank’s autonomy and its single mandate of fighting inflation.

Mexico’s growth outlook remains complicated, Rodriguez said, due to geopolitical conflict and the Omicron variant of Covid-19. The International Monetary Fund cut its Mexican growth projection for 2022 to 2% this week, 0.8 percentage points below its previous forecast.

The bank’s digital currency will be fully functioning within 3 years, said Rodriguez, adding that private crypto-currencies are risky and without legal backing in Mexico.

Source: El Financiero