Mexico central bank raises interest rates to 4.5%

In a report released by Mexico’s apex lender on Monday, the regulator announced that it has increased its key interest rate by 25 basis points to 4.5%, as part of efforts to contain price pressures.

Analysts have now predicted that there might more increases in 2021, even though the board votes were split on this recent increase, as two members voted to retain the previous rates. This is the second time that the Central Bank will increase its interest rates this year. 

“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 bank said.

Although Mexico’s yearly inflation fell in July to the lowest levels in four months to 5.81%. Yet it was not a feat anyone could celebrate as it still surpassed the prediction of analysts forecasts and was very much above the target set by the country’s apex bank. 

The lender’s target is an inflation level of 3%, with a one percentage-point tolerance range above and below that. It argues that the increase in the cost of borrowing is necessary if the set target will ever be attained.

“It was deemed necessary to strengthen the monetary policy stance in order to avoid adverse effects on inflation expectations and enable an orderly adjustment of relative prices and the convergence of inflation to the 3% target,” it said.