Banxico raises the reference interest rate to 7% as a measure against inflation

The Bank of Mexico (Banxico) raised the cost of money, after it raised the interest rate to 7% as a measure to curb inflationary pressures caused by Russia’s invasion of Ukraine and the resurgence of Covid-19 in China.

“The Governing Board of Banco de México decided to increase the target for the overnight Interbank Interest Rate by 50 basis points to a level of 7.0%, effective as of May 13, 2022,” the central bank reported.

The governor and deputy governors 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 could be contaminated.

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The officials also considered the greatest challenges in the face of the tightening of global monetary and financial conditions, the environment of heightened uncertainty, the greater inflationary pressures associated with the geopolitical conflict and the resurgence of Covid-19 cases in China, and the possibility of greater damages. to the inflationary environment.

“Based on this, it decided by majority to increase the target for the overnight interbank interest rate by 50 basis points to a level of 7.0 percent.”

With the increase in the interest rate, the monetary policy stance is adjusted to the trajectory required for inflation to converge to its 3 percent target within the forecast horizon, Banxico added.

In the next decisions, the Governing Board will closely monitor inflationary pressures, as well as all the factors that affect the forecast trajectory for inflation and its expectations, he added.

“This with the objective of determining a reference rate that is consistent at all times with both the orderly and sustained convergence of general inflation to the 3% target in the term in which the monetary policy operates, as well as with an adequate adjustment of the economy and financial markets”, he explained.

Faced with a more complex outlook for inflation and its expectations, action with greater forcefulness will be considered to achieve the inflation target, the central bank concluded.

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