Banxico raises its interest rate to 10% for the first time in history

In its monetary policy statement, Banxico indicates that the pressures due to price increases will continue in the following months: “Both general and core inflation have continued to be affected by the accumulated pressures derived from the pandemic and the armed conflict. The corresponding expectations for 2022, 2023 and the medium term they were adjusted upwards again. The long-term ones remained stable, although above the goal.”

Banxico estimates that this year inflation will close at 8.3%but that will be until first quarter of 2024 when the variation of the general index enters the range of its inflationary target with a 3.8%.

The entity has increased the target rate by 525 basis points as part of a cycle of hikes that began in June 2021, after inflation began to accelerate above the target of 3% +/- one percentage point.

The central bank explained that the inflationary risks are a persistence of underlying inflation at high levels; 2) external inflationary pressures derived from the pandemic; 3) greater pressure on agricultural and energy prices due to the geopolitical conflict; 4) exchange rate depreciation; and 5) cost pressures.

Inflation is at levels not seen in more than two decades.

Last week, the Fed raised the federal funds target rate by 75 basis points to a range between 3.75% and 4%, in its fight against the worst inflation in 40 years.