Banco de México decided to raise the reference interest rate to 7%, with an increase of 50 basis points, as practically all analysts anticipated.
But the most important thing about the news is that the central bank implicitly ratified its autonomy.
Why? Because despite President Andrés Manuel López Obrador’s “suggestion” that he no longer raise rates, he not only increased it again, but also showed that more increases are coming.
With yesterday’s decision, the central bank’s governing board marked its distance –as in fact it had already been doing– with respect to the Federal Executive.
The central institute consolidated its credibility by putting its mandate, to keep inflation at bay, before the wishes of the Chief Executive.
The fact that the President of the Republic has not brought forward the announcement of Banxico’s decision – as he did on the previous occasion and then, faced with the scandal that arose, he had to apologize and assure that he did not know that it was public–, that is also a good sign.
The inflation that Banxico faces today is part of a global inflationary phenomenon. Consequently, it is a major challenge, to the extent that the factors that determine it are external.
The central bank is realistic and sees strong pressures in the inflation scenario.
In fact, the registered inflation is a worrying fact: in April the general and core inflation registered annual rates of 7.68 and 7.22 percentConsequently, it revised upwards its general and core inflation forecasts for the remainder of the year and up to the second and third quarters of 2023, but still hopes to return to its goal in early 2024.
He forecasts inflation to close at 6.4%, his previous forecast expected it to end at 5.5. percent.
The dissenting vote
The decision to increase the reference interest rate by 50 basis points was by majority.
The vote was not unanimous. One dissenting vote was recorded, on the rise. Deputy Governor Irene Espinosa’s vote for an increase of 75 base points marks a turning point in which, if inflationary pressures continue, there could be increases of up to 75 base points, going forward.
Governor Victoria Rodríguez Ceja and deputy governors Galia Borja, Jonathan Heath and Gerardo Esquivel voted to increase the interest rate by half a percentage point.
The governing board notes that the balance of risks remains biased to the upside and continues to deteriorate.
Consequently, it could not only continue applying the aggressive 50 base point increases it has been making, but it could even apply increases of 75 base points.
But what is clear is that Banxico, governed by Victoria Rodríguez Ceja, with three consecutive increases of 50 basis points and 4 including one prior to his management, is clearly concerned about the pressures and maintaining the anchor of inflationary expectations.
The key phrase of the central institute’s statement specifically says: “in the face of a more complex outlook for inflation and its expectations, action with greater force will be considered to achieve the inflation target.” In addition to the deteriorating outlook for inflation, Banco de México is pressured by the Fed’s monetary tightening, which recently increased its rate by 50 basis points and could do so again on two more occasions.
The list of risks that Banxico foresees is long: persistence of subjacent inflation at high levels; external inflationary pressures derived from the pandemic; greater pressure on agricultural and energy prices due to the geopolitical conflict; exchange depreciation; cost pressures.
Hence, the message is clear, inflationary pressures remain on the rise and Banco de México will tighten its monetary policy with new increases in its interest rate.
Faced with this panorama, economic analysts have raised their forecasts regarding Banco de México’s interest rates for the end of the year to between 8.50 and 8.75%.
More inflationary pressures are presaged. It causes peace of mind that Banxico acts autonomously.
Rich and Powerful
He has worked continuously in newspapers, magazines, radio, television and the Internet, in the last 31 years he has specialized in business, finance and economics. He is one of the three hosts of the program Alebrijes, Águila o Sol, a program specialized in economic issues that is broadcast on Foro TV.