- Banxico raises key rate by 25 bps to 11.25% in unanimous decision.
- Statement mentions that the current monetary policy stance adjusts to what is necessary for inflation to converge to the target.
- Mexican Peso retreats after decision, USD/MXN climbs to 18.10.
The Bank of Mexico raised it key interest rate by 25 basis points as expected, to 11.25%. That represents the smallest rate hike since November 2021. Since then, it raised by 50 bps at six meetings, and by 75 bps in four. The decision was unanimous. In the statement, Banxico said that "the monetary policy stance adjusts to the trajectory required for inflation to converge to its 3% target within the forecast horizon", suggesting it's done raising rates.
Key quotes from the statement:
“Inflation expectations for 2023 and 2024 were revised upwards again, while those for longer terms remained relatively stable.”
“The balance of risks for the trajectory of inflation within the forecast horizon remains biased to the upside.”
“The Governing Board evaluated the magnitude and diversity of the inflationary shocks and its determinants, along with the evolution of medium- and long-term inflation expectations and the price formation process. It considered the challenges stemming from the ongoing tightening of global financial conditions, the environment of uncertainty, the persistence of accumulated inflationary pressures and the possibility of greater effects on inflation, as well as the monetary policy stance already attained in this hiking cycle.”
“The Board decided unanimously to raise the target for the overnight interbank interest rate by 25 basis points to 11.25%. With this action, it slows the pace of interest rate increases and the monetary policy stance adjusts to the trajectory required for inflation to converge to its 3% target within the forecast horizon.”
“The Board will thoroughly monitor inflationary pressures as well as all factors that have an incidence on the foreseen path for inflation and its expectations. The latter, in order to set a policy rate that is consistent at all times with both the orderly and sustained convergence of headline inflation to the 3% target within the time frame in which monetary policy operates as well as with an adequate adjustment of the economy and financial markets. For its upcoming decision, the Board will take into account the inflation outlook, considering the monetary policy stance already attained.”
Market reaction
Prior to the decision, the USD/MXN was trading at 18.05, at the lowest level in three weeks. Following the decision, it jumped toward 18.10, erasing daily losses.
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