A US Recession Could Further Impact Mexico’s EconomyBy Sofía Hanna | Mon, 06/27/2022 - 16:22
The economic outlook of the Americas remains uncertain as inflation rates keep steadily rising. The US’s inflation and unemployment rate are worrying experts of a potential recession, which could further damage Mexico’s already straining economy.
The US’s inflation rate now exceeds 4 percent, which led its Federal Reserve (Fed) to hike up interest rates and might lead to an economic recession in the northern country, according to BBVA Research. A recession in the US would consequently imply a slowdown in Mexico. On June 24, the Bank of Mexico (Banxico) followed suit and increased its interest rate by 75 basis points, following a similar action by the Fed.
At this moment, and with high odds that the Fed will repeat the 75 base point hike in July, it is still expected that Banxico will do a similar at its next meeting in August, making the policy rate peak at 9.50 percent in this cycle, as stated by BBVA Research. "In our view, for coming meetings, it would be useful for markets and analysts to better understand Banxico's goals with its policy tightening," said BBVA.
To address the rapidly rising inflation and stave off a potential recession banks have to act fast, said Agustín Carstens, General Manager, Bank for International Settlements (BIS): "The key for central banks is to act quickly and decisively before inflation takes root. A lot will depend on precisely how permanent these inflationary shocks are and if this adjustment generates massive losses, widespread asset corrections and that contaminates consumption, investment, and employment, of course, that is a more difficult scenario."
Carstens, former head of Mexico's central bank, added that the emphasis has to be put on acting in the "quarters to come" as a soft economic landing, where rates go up without triggering recessions, is still possible, according to Reuters.