Mexico to speed pace of interest rate hikes

Bloomberg

Mexico’s central bank is expected to speed the pace of interest rate increases, hiking borrowing costs by the most in recent times, with inflation stuck near a two-decade high.
Banco de Mexico, known as Banxico, is seen raising its key interest rate by 75 basis points to 7.75%, the highest in almost three years, according to all 27 economists surveyed by Bloomberg. It’d be the biggest single rate increase since the central bank adopted the
inflation target policy in 2008.
The 75 basis-point rise would also match the move by the Federal Reserve last week, the biggest withdrawal of monetary stimulus in the US since 1994. Both countries are reeling from inflation that’s well above their respective targets and Banxico tends to move in tandem with its northern neighbour to avoid sudden outflows of capital.
Mexico’s central bank had set itself apart from other monetary authorities in Latin America by lowering rates slowly at the start of the pandemic, then easing into a hiking cycle started a year ago that included four consecutive 50 basis-point increases since December. That compares to increases of as much as 150 basis points in Brazil earlier this year.
Banxico’s five board members now seem ready to accelerate the pace of tightening after Deputy Governor Irene Espinosa broke ranks in May to vote for a 75 basis-point increase. Her colleague Jonathan Heath subsequently said he expected the board to hike by that magnitude at the June meeting.
“My very personal opinion: I think there will be a majority and we will see this increase of 75 points,” Heath said. “The fundamental decision will be whether in August we will continue to boost 75 or we
return to 50” basis points.
Consumer prices rose 7.65% last month from a year earlier, staying close to the 21-year high registered in April and more than double the central bank’s target of 3% — plus or minus 1 percentage point.
Banxico’s most recent survey of economists suggest that headline inflation will be 6.88% by the end of 2022 and 4.40% by the end of 2023, heading toward its 3% target only by early 2024. More worryingly, core inflation has accelerated for 18 consecutive months to 7.28% in May and economists see it still above 4% by the close of next year. Since it excludes volatile items such as fuel, it is a metric of how lasting price rises might be.