Bank of Mexico hikes rates to record 8.5%, moderates tone on future path

Bank of Mexico hikes rates to record 8.5%, moderates tone on future path

The Bank of Mexico hiked its benchmark interest rate by three-quarters of a percentage point to a record 8.5% on Thursday, mirroring the U.S. Federal Reserve’s most recent policy decision as inflation surged to an over two-decade high.

The five board members of Banxico, as the central bank is known, voted unanimously for the second 75 basis point hike in a row, saying the board would “assess the magnitude of the upward adjustments in the reference rate for its next policy decisions based on the prevailing conditions.”

Analysts said that language gave its forward guidance a slightly dovish bias, moderating the tone of its prior monetary policy statement on June 23 when it said the board intended to continue raising rates and would “evaluate taking the same forceful measures if conditions so require.”

This comes after slowing U.S. inflation may have opened the door for the Federal Reserve to temper the pace of its future hikes, though U.S. policymakers stressed they would continue to tighten monetary policy until price pressures were fully contained.

“We still think that Banxico will follow the Fed in the hiking cycle to preserve the historical 600 bp rate differential,” analysts at Actinver Research said in a note to clients.

Banxico has increased rates by a total of 450 basis points over its last 10 monetary policy meetings.

Annual inflation in Latin America’s second-largest economy climbed to 8.15% in the year through July, its highest level in nearly 22 years.

Banxico said Thursday that the balance of risks for the trajectory of inflation “remains biased significantly to the upside.”

The rate increase, which was in line with expectations in a Reuters poll, brings the key rate to its highest level since Banxico’s current regime was put in place in 2008.

Its latest policy move comes alongside several others in the region.

Earlier in the day, Argentina’s central bank raised its key rate by 950 basis points, a mere two weeks after its last hike, amid soaring inflation, which is forecast to hit 90% by the end of the year.

Peru’s central bank is expected to hike rates later on Thursday by 50 basis points, after annual inflation slowed slightly but remained at a multi-year peak.