Banxico Raises Interbank Interest Rate by 25 Basis Points

The Bank of Mexico (Banxico) raised the Overnight Interbank Interest Rate by 25 points, leaving it 11.25% starting on March 31, 2023. Banxico attributed the decision to elevated global inflation, adding that international financial markets faced turbulence due to increased risk aversion in the banking systems of the US and the EU. This move is just the latest taken by financial institutions seeking to maintain confidence and provide liquidity. 

Banxico’s Governing Board explained that the US Federal Reserve (Fed) and most central banks continued to increase their interest rates, adding that growth prospects for 2023 are likely to slow down. The most notable global risks are inflationary pressures, the worsening of the geopolitical tensions, tighter financial conditions and challenges to financial stability.

In Mexico, interest rates have gradually increased for several months due to greater aversion to risk, as the country has kept up with the Fed’s interest rate hikes. Mexico, however, suffered little impact from the recent banking troubles that the US and the EU faced, reports Banxico. The bank added that Mexican institutions comply with regulatory requirements pertaining to liquidity and capitalization. 

The annual headline inflation has fallen since Banxico’s last monetary policy meeting, mainly due to the evolution of the non-core component, according to the bank. However, the board noted that expectations for inflation in 2023 and 2024 increase, as the long-term outlook remains stable.

“The Governing Board will closely monitor inflationary pressures, as well as all factors that affect the expected trajectory of inflation and its expectations. This, with the aim of always determining a reference rate consistent, both with ordered convergence and sustained headline inflation to the 3% target in the term in which the monetary policy operates, as with a proper adjustment of the economy and financial markets. The Governing Board will take its next decision based on the inflationary outlook, considering the monetary stance already reached,” says Banxico via a press release.