Reuters.- The Bank of Mexico (Banxico) raised its key interest rate by 25 basis points this Thursday for the second consecutive time to 4.50%, citing the need to strengthen the monetary stance to avoid impacts on inflation expectations and promote an adjustment ordered from the prices.
The decision, which was divided, was in line with a Reuters poll in which 17 of 19 analysts consulted expected the financial authority to raise the funding rate by 25 basis points.
Deputy Governors Galia Borja and Gerardo Esquivel voted to leave it unchanged at 4.25%, according to Banxico.
“Although the shocks that have affected inflation are expected to be transitory, (…) they may imply a risk for price formation,” he said in a statement. “For this reason, it was considered necessary to strengthen the monetary stance in order to avoid affecting inflation expectations.”
In its last monetary policy announcement, Banxico surprised the market by raising the cost of loans by 25 basis points to 4.25%, citing similar concerns related to the consumer price index.
Annual inflation in Mexico moderated slightly in July, although less than expected, at 5.81%, far from the central bank’s target of 3% +/- one percentage point.
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“The balance of risks with respect to the forecast trajectory for inflation in the forecast horizon is on the rise,” said the central bank, which estimated that it will be in the first quarter of 2023 when annual inflation converges to the target and that it will close at 5.7% in the fourth quarter of the year.
Banxico foresees that the recovery of the local economy, which plummeted 8.5% in 2020 due to the ravages of the pandemic, will continue for the rest of the year, although it warned that risks persist due to the increase in Covid-19 infections.
At the end of July, the Ministry of Finance adjusted its projection for GDP growth in 2021 to 6%, despite the fact that both Undersecretary Gabriel Yorio and then-Secretary Arturo Herrera had advanced that it could grow up to 6.5%.
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