Interbank Interest Rate Hits its Highest Point Since 2001

Banxico announced that as of March 25 the overnight interbank interest rate will be increased by 50 basis points to 6.5 percent. The move was announced by President Andrés Manuel López Obrador prior to the bank’s announcement, violating article 45 of the Central Bank law.

“The Governing Board evaluated the magnitude and diversity of the shocks that have affected inflation and its determinants, as well as the risk that medium and long-term expectations and price formation are contaminated. Based on this, and with the presence of all its members, it unanimously decided to increase the target for the overnight Interbank Interest Rate by 50 basis points to a level of 6.5 percent,” reads the official Banxico press release.

According to Banxico's announcement, the decision was made after considering the challenges the country faces under the tightening global monetary and financial conditions. The global economy also faces an environment of heightened uncertainty and greater inflationary pressures associated with the geopolitical conflict. Global inflation is being further pressured by logistic bottlenecks and high food and energy prices, which has led analysts to forecast an accelerated reduction of monetary stimulus globally.

President López Obrador unofficially announced this policy change in his morning conference, which is considered a violation of the article 45 of the Central Bank law. The institution states that the Minister and Deputy Minister of the Treasury are to attend the monetary policy meetings, although they do not have a vote in the decisions. 

After the announcement, the president said "I received the information last night and I thought it had been made public." Several experts in economic matters indicated that the leak was unfortunate since it could represent a violation of Banxico’s autonomy. However, the president emphasized that he will respect the autonomy of Banxico, according to El Financiero. 

BBVA experts expect “inflation to remain well above 5 percent until year-end and core inflation to ease below 5.5 percent until November-December. We expect Banxico to take the policy rate to 8.0 percent.” Banorte experts forecast an increase of the same magnitude in May 2022, potentially followed by increases of 25 base points afterward.