Banxico interest rate 2022
Since May, Banxico had already signaled an increase of more than 50 basis points. Then with the Federal Reserve announcement (Fed) last week, it made more sense to raise the rate to 7.75%
Given that the -external- inflationary pressures are expected to continue driving up the national consumer price index (INPC), more increases in the reference rate are expected in the remainder of the year. Among the risk factors are China’s zero covid policy, disruptions in supply chains and the conflict between Russia and Ukraine, factors in which central banks do not have much to do, Cristina Morales highlighted.
According to the Bank of Mexico statement, inflation will continue to rise until reaching 8.1% in the third quarter, and then begin to decline, until the third quarter of 2023 when it falls within the variability range (3.5%).
That is why specialists such as Adrián de la Garza, from Citibanamex, and Cristina Morales, from Valmex, see that the central bank rate will close the year at 9.25% and 9.50%, respectively. The latest Citibanamex survey indicates that this monetary policy instrument will end at 9.50%.
Janneth Quiroz, from Monex, and De la Garza did not rule out Banxico taking the reference rate to double digits “if inflation continues to rise and, above all, if it continues to affect expectations. One of the biggest risks is that long-term inflation continues to rise,” said Monex’s deputy director of economic analysis.
Another tool that the central bank has regarding inflation has to do with having good communication, with clear indications, pointed out Janneth Quiroz and Cristina Morales. For example, pointing out that the Governing Board “will value acting with the same forcefulness if required.”
The fact that it was a unanimous decision “gives strength to the decision; it speaks of a Governing Board that has a more homogeneous vision”, pointed out the Citibanamex economist.
This is how the interest rate has moved
The maximum level of the reference rate has been 8.25% (2008 and 2019), so if a scenario of more than 9% materializes, even double digits, Banco de México will take this tool to a record level that seeks to control inflation.
In June of last year, the first increase of 25 base points took place, with which the interest rate went from 4% to 4.25%. Since then, the increase has been 3.75 percentage points.
In a scenario in which inflation picked up again, reaching 7.88% per year in the first half of June.
As if this were not enough, towards the fourth quarter of the year Banxico increased its inflation expectations by 110 base points, going from 6.4% to 7.5%, highlighted Cristina Morales.
“For next year we have an inflation estimate of 4.2%, something different from what the central bank brings (3.2%). So, we see convergence, but we see it towards the first quarters of 2024, perhaps a few months after what the central bank sees it”, anticipated the director of investments and analysis of Valmex.
