Central Bank of Mexico increased the rate to 9.25%

On Thursday, the Central bank of Mexico increased the credit rate to the maximum level of 9.25% as currently, the government aims to weaken inflation and not revive the slowing economic growth. 

Banxico increased the rate by three percent for the third time. Also, it changed the forecast concerning the growth of prices and indicated that until the end of 2022, the inflation rate won’t exceed 8.6% and won’t be 3.1% in the 3rd quarter of 2024. 

Such a decision was made due to the US Federal Reserve System also having raised an interest rate. The Mexican government keeps a close eye on the US Fed as the rate gap can cause exodus of capital. Therefore, the bank's board of directors declared it would increase the interest rate and act according to the situation.

In the beginning of September, annual inflation in Mexico increased to 8.8% and caused a sharp rise in food prices. This is the fastest rise in inflation in decades. Core inflation, which includes commodities such as fuel, indicates that prices will continue to rise.

The bank predicts inflation growth of 8.2% in the fourth quarter of 2022. This assessment is higher than the previous forecast of 7.6%. At the end of 2023, it will be 4.1%, although an increase of 3.2% was previously predicted. Banxico aims for inflation of approximately 3%.

Chief economist at Casa de Bolsa Finamex Jessica Roldan said that the management of Banxico had finally realized that there is inflationary pressure, and there is no reason for optimism.

Director of the Mexican Institute for Competitiveness Valeria Moy declared the weakening of the peso causes inflation that’s why in the coming months, Mexico will have to follow the increase in US credit rates.

The central bank started to target inflation in 2008, and since then, the cost of borrowing in Mexico has been higher than anytime.

The Citi poll showed GDP growth of just 1.2% in 2023, as opposed to 2% this year. In 2021, GDP grew by 4.8%.

The government of President Andres Manuel Lopez Obrador tried to contain the rise in prices with federal subsidies and agreements with manufacturers to reduce the prices of main goods.

The tightening of monetary policy could slow down the economic recovery. The President has already compared this situation to an engine shutdown.