Banxico hikes benchmark interest rate by 25 basis points to 4.5%

The central bank of Mexico (Banxico) announced on Thursday that it hiked the benchmark interest rate by 25 basis points to 4.5%.

Key takeaways from policy statement as summarized by Reuters

“Board was not unanimous on rate decision.”

“3 members of the board voted to raise rate to 4.50%.”

“2 members of the board voted to hold rate at 4.25%.”

“Banxico sees end-2021 inflation at 5.7%.”

“Banxico sees core inflation end-2021 at 5.0%.”

“The recovery of the Mexican economy continued during the second quarter and is expected to endure for the rest of the year, while risks related to the growing number of infections persist.”

“Annual headline and core inflation projections are expected to decrease, particularly for horizons of one year and beyond, and to converge to the 3% target during the first quarter of 2023.”

“Although the pandemic has complicated the assessment of the economy, slack conditions are anticipated, with significant differences across sectors.”

“Although the shocks that have increased inflation are expected to be transitory, due to their variety, magnitude, and the extended horizon over which they have affected it, they may pose risks to the price formation process.”

“The balance of risks for the trajectory of inflation within the forecast horizon is biased to the upside.”

Market reaction

The USD/MXN pair gained traction on this announcement and was last seen gaining 0.1% on the day t 19.9342.

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