Mexico central bank increases interest rates to all-time high

• In August, inflation in Mexico reached 8.7 percent, well beyond the central bank’s objective of approximately 3 percent.
• The central bank increased its inflation projections due to “larger-than-anticipated inflationary shocks”.
• Additional rate hikes are likely, depending on whether inflation moderates, the Bank of Mexico says.

Mexico central bank increased its benchmark interest rate to an all-time high on Thursday to contain the tremendous inflation in more than two decades.

The decision to increase the interbank rate by three-quarters of a percentage point to 9.25 percent was made unanimously by the governing board, according to the Bank of Mexico.

It was the eleventh consecutive hike and the third of this magnitude in a row.

In August, inflation in the second-largest economy in Latin America reached 8.7 percent, well beyond the central bank’s objective of approximately 3 percent.

The Bank of Mexico reported that price pressures resulting from the Covid-19 outbreak and the conflict in Ukraine continued to increase inflation.

Mexico central bank increased its inflation projections due to “larger-than-anticipated inflationary shocks and the possibility that their effects may linger longer.”

It anticipates that the annual inflation rate will reach 8.6 percent in the fourth quarter of this year, up from 8.1 percent earlier, and will remain over the 3.0 percent target until the third quarter of 2024.

The Bank of Mexico stated that additional rate hikes are likely, depending on whether inflation moderates.

“The governing board will assess the magnitude of upward adjustments in the reference rate at its next meetings according to the prevailing circumstances,” it said.

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