BANXICO not tied to following U.S. Fed rate hikes

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On Wednesday, August 31st, the Bank of Mexico said it is not wed to hiking interest rates in line with the U.S. Federal Reserve and will evaluate all available data to bring down inflation.

There has been much market speculation on whether Banxico, as the Mexican central bank is known, will follow in lockstep with the Fed as it embarks on what has become the sharpest round of U.S. rate hikes since the 1980s.

Banxico raised the benchmark interest rate by 75 basis points at its latest monetary policy meeting in August, mirroring the Fed, as inflation in Latin America’s second-largest economy surged to an over two-decade high.

“We do not have a specific objective regarding the relative position with the Fed, and the trajectory of the rate will be the one that leads us to the convergence of our inflation target,” Banxico Governor Victoria Rodriguez said as she presented the bank’s latest quarterly report.

Rodriguez underscored the Fed’s actions were an important variable the bank took into consideration, but said it was far from the only one being carefully considered and that the bank’s five-member board would evaluate all available data.

In an effort to tame spiraling inflation, Banxico has hiked rates by a total of 450 basis points over its last 10 monetary policy meetings, bringing the key rate to a record high of 8.5%.

The bank forecasts annual headline inflation to reach 8.1% by year-end, from 8.62% in mid-August, with core inflation reaching 7.6% by the end of 2022 and both falling to 3.2% by the end of 2023.

“In our assessment, the central bank headline/core forecasts for end-2022 are now significantly more realistic, but for end-2023 are still optimistic given our expectation of significant inertial inflation forces and accelerating wage growth,” said Goldman Sachs economist Alberto Ramos.

Source: El Financiero

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