Banxico raises reference rate by 50bp to 7%, peso strengthened

The Bank of Mexico, abbreviated BdeM or Banxico, sets the benchmark interest rate at 7%, though Reuters reports the board was not unanimous on the rate decision with one board member voting to raise rates to 7.25%.

Key statements from the Bank of Mexico (Banxico)

• Banxico says that four other board members voted to increase the rate to 7.00%.
• For the next monetary policy decisions, the board will closely monitor the behavior of inflationary pressures and the factors that impact the expected trajectory for inflation and its expectations.
• Preliminary information suggests that economic activity recovered during the first quarter of 2022.
• He says that given the growing complexity in the inflation environment and its expectations, more forceful measures can be considered to reach the inflation target.
• An environment of uncertainty and conditions of ample slack continue to prevail, although the latter was reduced compared to the previous quarter.
• In view of higher-than-anticipated pressures on inflation, forecasts for headline and core inflation have been revised upwards through the second and third quarters of 2023.
• However, convergence to the 3% target in the first quarter of 2024 is maintained.
• The balance of risks for the path of inflation within the projection horizon remains biased to the upside and continues to deteriorate.
• The growing challenges posed by tighter global monetary and financial conditions, the environment of significant uncertainty, and increased inflationary pressures associated with geopolitical conflict were taken into consideration.
• In addition to the shocks that have affected inflation throughout the pandemic, there are now pressures associated with geopolitical conflict and the strict lockdown measures recently imposed by China.
• The peso strengthened on the decision with USD/MXN falling 0.17% to 20.2685.