Banxico Shocks Markets, Bumps Interest Rates 50 Points

Photo: Google


After inflation in Mexico continued to surge in January to an annual rate of 7.91 percent (up from 7.82 percent in December) despite promises by President Andrés Manuel López Obrador (AMLO) that the consumer index had peaked out late last year, Mexico’s Central Bank (Banxico) announced Thursday, Feb. 9, that it was raising its benchmark by 50 basic points interest rate.

Banxico, which has already increased its benchmark rate by 650 basis points during the current hiking cycle, which began in June 2021, was only expected to increase the rate by 25 basic points based on predictions linking Banxico to the U.S. Federal Reserve’s (Fed) behavior.

The bullish increase surprised the markets and left the benchmark rate at 11 percent.

The decision was unanimous, according to the statement from the Banxico Governing Board.

This is the 14th time in a row that Mexico’s Central Bank has raised the rate in a nearly two-year cycle.

The Banxico decision, which is intended to curb inflation, differed significantly from the one taken by the U.S. Federal Reserve (Fed) at the beginning of this month, when it increased its benchmark by 25 basis points, to place it in a range of 4.50 to 4.75 percent.

“Given the underlying inflation dynamics, on this occasion it is necessary to repeat the magnitude of the increase in the reference rate of the previous meeting, in order to be in a better position to face a still complete inflationary environment,” the Banxico Board said in a written statement.

Banxico’s sole mandate is to maintain low and stable inflation, in a target range of 3 percent +/- one percentage point, which suggests that the upward cycle will continue for at least a good part of 2023.

Leave a Reply