Banxico Increases Interbank Interest Rate by 75 Base Points
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Banxico Increases Interbank Interest Rate by 75 Base Points

Photo by:   Image by NikolayFrolochkin from Pixabay
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Emilio Aristegui By Emilio Aristegui | Junior Journalist and Industry Analyst - Sat, 10/01/2022 - 13:51

The Bank of Mexico’s (Banxico) Board of Governors increased the target for the overnight Interbank Interest Rate by 75 basis points. It stands at 9.25 percent as of Sep. 30, 2022. 

Banxico had pointed to a slowdown in Mexico’s economy during 3Q22, as imbalances in supply and demand and high prices for food and energy continue to provoke a rise in global inflation. Globally, expectations to accelerate monetary policies and reference rates are palpable.

During recent months, financial conditions remained tight and the US dollar gained strength, as the US Federal Reserve (Fed) continues to increase its target rate for the federal funds. Last week, the Fed increased its rate by 75 basis points for a third time. The Fed also anticipated future rate increases considering inflation and a moderate decline in the US economy. 

“In turn, many other central banks continued to increase their reference rates, some more than expected. Among the global risks, those associated with the pandemic, the prolongation of inflationary pressures, the aggravation of geopolitical tensions and greater adjustments to economic, monetary and financial conditions stand out,” reads Banxico’s press release. 

Banxico expects that inflation will reach its 3 percent target in the third quarter of 2024. But this estimation includes growing risks such the persistence of high core inflation, external inflation pressures derived from the pandemic, higher pressures on agricultural prices and energy due to the war between Russia and Ukraine and cost pressures. However, these risks could be ameliorated by a decrease in the intensity in the war between Russia and Ukraine, better functioning supply chains and a greater than expected effect of the Package Against Inflation and Scarcity, among other factors. 

“With the presence of all its members, [Banxico] decided to unanimously increase by 75 basis points the target for the overnight Interbank Interest Rate to a level of 9.25 percent. With this action, the monetary policy stance is adjusted to the trajectory required for inflation to converge to its 3 percent target within the forecast horizon,” concludes Banxico. 

Photo by:   Image by NikolayFrolochkin from Pixabay

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