Banxico has raised its benchmark interest rate by 700 basis points

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The Bank of Mexico’s monetary tightening cycle is nearing its end and nominal interest rates could top out between 11.25% and 11.75%, at which point rates would be kept steady to allow them to take effect, deputy bank governor Jonathan Heath said.

Banxico, as the Mexican central bank is known, has raised its benchmark interest rate by 700 basis points since its rate-hiking cycle started in June 2021, as inflation surged far beyond its target of 3%, plus or minus 1 percentage point.

“Right now I would say that I see the terminal rate very near 11.50%, between 11.25% and 11.75% … but a lot can change,” Heath said in an interview with Reuters late on Wednesday.

At last week’s policy meeting, Banxico’s five-member governing board voted unanimously to increase the key rate by 50 basis points to 11.00%, above market forecasts for a quarter of a percentage point hike, citing a complex inflation scenario and suggesting they could enact a smaller hike at the next meeting, in March.

That forward guidance, however, “is not a commitment and will always be data-dependent,” Heath said, underscoring that his views did not represent the positions of the bank’s other board members.

Initially, Heath, who is regarded as one of the board’s most hawkish members, had expected to vote for a 25-basis-points hike at the last meeting, until incoming data painted a “less benign” picture for inflation. He said new information could sway Banxico’s board members one way or another before the March 30 meeting.

Heath said the January inflation data, which showed the annual headline figure accelerating to 7.91% and annual core inflation standing at 8.45%, highlighted a concerning jump in price pressures in the services sector.

Services are non-tradable, so “you can’t blame foreign trade. It’s no longer the case that we are importing inflation. No, these are internal, domestic pressures,” said Heath, adding that the higher-than-expected services inflation data means the stickiness of inflation is going to last longer.

Source: El Financiero

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