Mexico central bank likely to match Fed rate hike in March

Bloomberg

Mexican deputy central bank Governor Jonathan Heath expects the board to raise its key interest rate by a quarter-point next month, assuming the US Federal Reserve delivers an increase of that size and there are no other surprises.
Going forward, the Fed’s hikes are likely to be the Banco de Mexico’s “floor,” Heath said in a video interview with Bloomberg News.
“When the Fed increases we’ve always increased at the same pace or more, but never less, so I don’t really see the case for it to be different now,” he said. “What would make us try to go faster than the Fed is if we don’t see inflation peaking in March or April, maybe a little bit later — that’s the type of data point I would be looking at.”
The bank, known as Banxico, delivered its second-straight half-point hike last week, as inflation hovers above 7% and readings that exclude the most volatile prices keep accelerating. Policy makers have raise their key rate by 200 basis points since last summer, removing most of the monetary stimulus the bank provided in 2020. The economy falls into a technical recession at the end of last year, according to preliminary figures.
Assuming the Fed only boosts its rate by a quarter point, Heath said he didn’t expect Mexico to hike by a half-point again in March to avoid having too great a difference between its rate and the Fed’s, as well as over concern for its potential impact on Mexico’s economic slowdown. Heath said he expects the bank’s growth projections to be revised downward at its next quarterly report.
While headline inflation has slowed from November’s two-decade high of 7.37% to 7.07% in January, Heath said he doesn’t think the problem has yet begun receding, since core inflation — which excludes unpredictable items like fuel — is still surging.
“We cannot really describe inflation reaching a peak until core inflation peaks. Core inflation is still on a very clear upward trend and still is not showing any evidence of peaking,” he said. “I would say March or April would be when we should see it peak, hopefully starting a slow, difficult downward trend.” The annual core inflation rate was 6.21% in January. Banxico targets headline inflation of 3%, plus or minus one percentage point.
Absent major shocks, he thinks private sector economists are “reasonable” in expecting the bank’s target rate to end the year between 7% and 8%. Banxico raised its key rate to 6% on February 10.