Mexico: Banxico hikes benchmark interest rate by 25 basis points to 4.25%

The central bank of Mexico (Banxico) announced on Thursday that it hiked the benchmark interest rate by 25 basis points to 4.25%. Investors were expecting Banxico to leave its policy rate unchanged at 4%.

Market reaction

With the initial market reaction, the USD/MXN pair fell sharply and was last seen losing 1.85% on a daily basis at 19.7915.

Key takeaways from policy statement as summarized by Reuters

"Board was not unanimous on rate decision."

"2 members of the board voted to keep the rate steady at 4.0%."

"Balance of risks to inflation is biased to the upside."

"Headline inflation now expected to converge to the 3% target during the third quarter of 2022."

"Shocks that have affected inflation are expected to be of a transitory nature."

"It was deemed necessary to strengthen the monetary policy stance in order to avoid adverse effects on inflation expectations."

"Mexican economy recovered notably in March and moderately in April."

"Mexican economy is expected to resume its recovery during the rest of the year."

"Balance of risk of risks to growth is equilibrated."