The previous four interest rate hikes didn’t help. Will yesterday’s work?

On December 1, 2018, the day that President Andrés Manuel López Obrador took office, the Bank of Mexico’s Interbank Interest Rate was 8.0 percent. Eighteen days later, the central bank’s Governing Board decided to increase it by 25 basis points to 8.25 and it remained there until August 15, 2019, when it was reduced to 8% again. That was the first of 10 cuts that brought the rate to 4% on February 12 of this year.

Then, in the middle of the year, on June 25, seeing that inflation was increasing, the Governing Board, whose main objective is to avoid price increases, decided to increase it to 4.25 percent. This increase was insufficient to prevent the goods and services consumed in the country from costing more every day, as insufficient were the three subsequent increases, of 25 basis points each, on August 13, October 1 and October 11. November, which brought the rate to 5%, the level it was from June 25 to August 14, 2020.

And, since none of the recent increases served to curb the rise in prices, the Governing Board decided to raise the rate again, this time by 50 basis points, to 5.5%, the same that was in force from May 14 to May 25. June of last year.

To explain the reasons for its decision, Banxico said yesterday that “global inflation continued to rise, pressured by bottlenecks in production, the recomposition of spending on merchandise, high food and energy prices, and the recovery of some services. … Global risks include those associated with the pandemic, inflationary pressures and adjustments to monetary and financial conditions.

“In the national financial markets, the exchange rate depreciated and medium and long-term interest rates showed upward adjustments, influenced by external conditions … An uncertain environment remains …

“Global and domestic inflationary pressures continue to affect annual headline and core inflation, which in November registered 7.37 and 5.67%, respectively. The expectations of headline and core inflation for 2021, 2022 and for the next 12 months increased again, as well as those for the medium term …

“The forecasts for headline and core inflation were revised upwards again, especially those for 2022 …

“The Governing Board evaluated the magnitude and diversity of the shocks that have affected inflation and the factors that determine it, the risk that price formation will be contaminated, and the challenges due to the tightening of global monetary and financial conditions. Based on this, it decided, on this occasion, to increase the target for the Interbank Interest Rate by 50 basis points … ”.

For Banxico, the inflation rate of 3% will be reached until the fourth quarter of 2023, which many see as difficult and even illusory, as was their estimate that this year it would be 3% when in reality it will be just over 7%. percent.

Everything seems to indicate that the inflation rate in 2021 will be just over 7%, the highest in the 21st century, which shows that the four increases in the interest rate did not work. Hopefully that of yesterday does manage to control the price rises.

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Eduardo Ruiz-Healy

Journalist and producer

Guest column

Opinion writer, columnist, lecturer, media trainer, 35 years of experience in the media, micro-entrepreneur.

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