Banco de Mexico still has more to do to tame inflation

Improved situation: Workers unload a truck with yellow corn imported from the United States at a cattle feed plant in Tepexpan. Mexico’s inflation slowed to 7.5% in the last two weeks of February after touching 8.8% in August. — Reuters

MEXICO CITY: Deputy governor Irene Espinosa says the Banco de Mexico will have to push interest rates higher in order to bring inflation in Latin America’s second-largest economy under control.

“Core inflation has been very resistant to decline,” Espinosa told Bloomberg Television’s Mark Cudmore and Francine Lacqua in an interview, referring to a measure of price gains that exclude volatile items such as food.

“It is clear that sources of inflationary pressure are there and there is the need for an additional monetary effort.”

Banco de Mexico, which has continued raising interest rates even while some of Latin America’s inflation-targeting central banks have stopped, has increased borrowing costs 700 basis points since June 2021, taking borrowing costs to a record 11%.

Analysts in a Citi survey published this week forecast that the bank known as Banxico will hike by a quarter-point at its next decision March 30, though the US Federal Reserve’s upcoming decision could influence Banco de Mexico’s next move.

Espinosa, Banxico’s longest-serving board member, was in favour of the surprise 50-basis-point hike agreed upon in the February decision but dissented in the minutes on the grounds that the bank should be “extremely cautious” with forward guidance.

Banxico had said in its post-decision statement that its next upward adjustment to the key rate could be “of lower magnitude,” a possibility that governor Victoria Rodriguez Ceja said was still being considered during an interview with Bloomberg News last week.

Mexico’s inflation slowed to 7.5% in the last two weeks of February after touching 8.8% in August. Core inflation also improved to 8.21% in the same period.

“The prints of inflation lately have brought some good news, nevertheless we’re in a very complex and uncertain environment, so we’ve to be very careful about how to give forward guidance,” Espinosa, who is seen as a hawkish member of Banxico’s five-person board, said in London.

The five-year TIIE curve fell three basis points, paring the rise seen across the curve earlier on Wednesday following Espinosa’s remarks and while traders wait for the key Federal Reserve decision. TIIE is a reference rate for the currency Mexican peso.

Espinosa said at an annual banking convention last week that she thought the Mexican banking system was safe from the kind of of shocks hammering other countries recently, largely because it’s well-capitalised and has a common regulatory framework. — Bloomberg

Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!

Banxico , ratesignal , inflation , Mexican peso


Next In Business News

Ramssol Group appoints Abdul Harith Abdullah as chairman effective today
Wall St set for subdued open as mixed data fuels Fed policy uncertainty
KPJ Healthcare appoints Mohamad Farid Salim as COO
BR Capital gets SC's approval-in-principle to operate debt fundraising platform
UEM Sunrise buys Kelana Jaya land from EPF to develop RM1.1bil GDV project
Concerns over China's economy weigh on ringgit at close
HSS Engineers gets RM8.9mil engineering design and consultation contract
SkyWorld inks underwriting agreement with Kenanga Investment
JCorp's net profit surges to RM808mil in FY22
SC, Bursa roll out mandatory sustainability onboarding programme for PLC directors

Others Also Read