Mexico’s central bank cuts growth forecast to 2.2% for 2022

Bloomberg

Mexico’s central bank cut its growth forecast for this year and next, as the country’s recovery continues to sputter amid supply chain shortages and the impact of Russia’s
invasion of Ukraine.
Banxico, as the central bank is known, sees gross domestic product expanding 2.2% for this year in the main scenario of its quarterly inflation report released Wednesday. That’s below the 2.4% expected in its previous report three months ago. For 2023, the economy is seen growing 2.4%, also lower than the 2.9% estimated before.
Growth has been lackluster in Latin America’s second-largest economy despite the revival of export-focused manufacturing and the services sector. Slower activity has been explained in part by President Andres Manuel Lopez Obrador’s austerity, which put a lid on public spending and debt, in contrast to heavy US government expenditures that kept many households afloat.
The bank maintained the inflation forecast announced in its May policy meeting, with price growth peaking at 7.6% in the second quarter of 2022, before slowing to 6.4% in the final part of the year.
The central bank last month hiked its key rate by a half-point for a fourth straight meeting and an eighth straight time overall to 7%, matching the aggressive response by policy makers across Latin America in coping with the sharpest surge in prices in a generation.
Governor Victoria Rodriguez Ceja emphasised in a press conference that a record hike of 75 basis points is “on the table” for the board’s next decision this month. The gap between the US and Mexico’s interest rates
is large and could increase
further, Rodriguez said.
Goldman Sachs Group Inc. now sees the bank delivering two consecutive 75-basis-point hikes and ending the year at 9.5%, chief Latin America economist Alberto Ramos said in a note after the press conference.
“In our assessment, only clear signs that inflation has peaked is likely to sway” the board from tightening faster in June, Ramos wrote.
The peso pared some of its losses against the dollar Wednesday as Rodriguez and other officials showed favour for faster, bigger rate hikes.
Banxico sees inflation slowing to 3.1% in the first quarter of 2024, suggesting a long road ahead for price gains to return to the bank’s 3% target. The Mexican economy narrowly avoided recession at the end of last year.
Under Rodriguez, the bank has hewed closely to the message that it will take whatever actions are necessary to keep inflation expectations in line this year.
Members of the bank’s board said in their last meeting that they would consider “more forceful” action if it is required, leading to a flurry of economists’ predictions about the possibilities of a 75 basis-point hike, which would be its biggest since the bank started its inflation-targeting strategy in 2008.