Mexico raises rates for fifth consecutive time as inflation soars

MEXICO CITY: Mexico’s central bank on Thursday raised its benchmark interest rate for the fifth consecutive time in a continuing attempt to rein in spiralling inflation.

Twelve-month inflation hit 7.37 per cent in November, its highest level in 20 years due to the increase in the prices of agricultural and energy products.

The bank’s governing board raised the rate by half a percentage point to 5.5 per cent.

“With this move, the monetary policy stance is adjusted to the path needed to approach its (inflation) target of 3.0 per cent,” said the bank in a statement.

Things may get worse before they improve with the bank expecting prices to be affected by external inflationary pressures, costs and the depreciation of the peso against the US dollar.

“The balance of risks with respect to the forecast path for inflation … has deteriorated again and remains high,” said the bank.

The Bank of Mexico began cutting interest rates in August 2019 and during 2020 when the coronavirus pandemic struck, badly affecting Latin America’s second largest economy.

Yet consumer prices have increased over recent months.

Mexico’s economy shrunk 8.5 per cent in 2020 due to the pandemic, the worst slump in around nine decades, but is expected to rebound by 6 per cent to 6.5 per cent this year.

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