Mexico’s central bank raised its benchmark interest rate by a further 25 basis points to 7.50 percent, as expected, but struck a more neutral tone than in December by saying it would act in a timely and firm manner “if necessary” to anchor inflation expectations and meet its inflation target.
Today’s policy statement by the board of Bank of Mexico (Banxico) compares with its hawkish statement in its previous statement when it said it would be “vigilant” and act as soon as possible to anchor inflation expectations and achieve the inflation target, given the intensification of the risks that could affect inflation.
It is Banxico’s first rate hike this year but it has now raised its rate by a total of 450 basis points since December 2015 when the U.S. Federal Reserve began tightening its policy.
Illustrating the more balanced guidance, the bank’s board was unanimous in today’s policy decision compared with December when the bank also raised the rate by 25 basis points but one member voted to raise it by 50 basis points.
The board said today’s hike took into consideration the more restrictive monetary conditions that are expected in North America in order to maintain a stance that anchors inflation expectations and reinforces the downward trend of inflation toward the bank’s 3.0 percent target.
Mexico’s inflation rate decelerated to 5.55 percent in January from 6.77 percent in December and Banxico said it expects inflation to continue to ease and approach its 3.0 percent target during the year and then reach it by the first quarter of 2019.
This is later than the central bank had expected, but it said this delay was due to the impact of the price of some energy products, fruits and vegetables that had pushed up inflation in recent months.
Mexico raises rate 25 bps, but strikes less hawkish tone