Banxico, as the bank is known, raised its reference rate by 75 basis points to 7.75%, as forecast by the 27 economists surveyed by Bloomberg. The unanimous vote delivered the biggest increase since the bank adopted the overnight interbank rate as its operating target in 2008, matching the Fed’s hike last week.
“I expect another 75 basis points in August and then raise it to put the rate at 9.5% by the end of the year”, said Carlos Capistrán, chief economist for Mexico and Canada at Bank of America.
Early June data released on Thursday showed annual inflation stood at a 21-year high of 7.88%. The price growth is more than double the bank’s target of 3%, plus or minus one percentage point.
“I would not be surprised by another increase of 75 basis points, not only because of what the statement says, but because of inflation”, said Valeria Moy, director of the Mexican Institute for Competitiveness, a research center.
The board said the balance of risks to the path for inflation has a “considerable” upward bias and revised its forecast in the statement accompanying the decision.
“The statement is simple: the increase of 75 basis points was not an isolated event, but a change in the pace of normalization, and we should expect more increases of this magnitude“, said Pamela Diaz LoubetMexican economist at BNP Paribas.
Inflation will peak at 8.1% in the third quarter of 2022, Banxico said, having previously estimated that it would peak at 7.6% in the second quarter. Price growth will end the year at 7.5%, it projected, up from 6.4% in its last forecast.
“Once again we have new highs for inflation components that have not been seen in several years, and there are particularly inflationary pressures on merchandise. That is what seems to worry the board of the bank”, said Janeth Quiroz Zamora, vice president of economic research at Monex Casa de Bolsa, adding that it is “highly probable” another rise of 75 basis points in August.
Alonso Cervera of Credit Suisse Group AG thought that might be the case, though it was still possible the board would drop to 50 basis points in August. What is not on the table for the next vote, according to the tone of the statement, is a further hike.
“They closed the door on the possibility of a further increase“, said.