Bank of America’s Economists Predict 11 Percent Interest RateBy Emilio Aristegui | Mon, 09/26/2022 - 17:45
Bank of America experts predicted that Mexico’s Central Bank (Banxico) will increase the country’s interest rate in September and November, as Banxico seeks to contain inflation in the country.
Bank of America's economists Carlos Capistrán and Christian González Rojas wrote that Banxico is expected to implement two consecutive 75 base point rate hikes in September and November, followed by a 50 base point increase in December. If accurate, Mexico would likely close 2022 with an 11 percent benchmark interest rate. Previous estimates calculated the figure to land at 10 percent, but the central bank’s prioritization of stability over growth led these economists to adjust their forecast, reports El Financiero, Bloomberg.
Banxico’s board will meet again on Sep. 29. If a 75 base point rate hike is approved, the current interest rate would climb to 9.25 percent. “Our main conclusion is that Mexico continues to prioritize stability over growth. On monetary policy, this means that it is very likely that Banxico will continue to raise its rate alongside the US,” said Capistrán and González.
A rate hike by Banxico would follow the US Federal Reserve’s (Fed) recent hike increase, which left its interest rate at a range of 3 percent to 3.25 percent, a level not seen since 2008. A similar increase is expected to protect the Mexican Peso from depreciation, which would enhance external price shocks. In previous cases, Banxico had increased rates following the Fed’s decisions. Despite the rate hikes, both economists suggested that the Mexican Peso will “probably” continue to surpass other currencies.
Mexico’s Ministry of Finance and Public Credit (SHCP) will continue to implement a tight primary balance and debt-to-GDP ratio under stiff control. Bank of America’s economists added that the SHCP’s priority also focuses on supporting Pemex, Mexico’s primary national oil producer, with more capital injections if necessary.