Bank of Mexico Increases Interest Rate, First Since Late 2018

Posted on 06/24/2021

Mexico’s central bank (Banxico) boosted the Mexican peso by unexpectedly increasing borrowing costs for the first time since late 2018. The rate decision was supported by 3 of 5 of the central bank’s board members.

In a split decision, Banco de Mexico raised its key rate by a quarter-point to 4.25% in response to a spike in inflation that policy makers had described as transitory.

“Although the shocks that have affected inflation are expected to be of a transitory nature, given their variety, magnitude, and the extended time frame in which they have been affecting inflation, they may pose a risk to the price formation process,” Banxico’s board said in the statement accompanying the announcement.

“In this context, it was deemed necessary to strengthen the monetary policy stance in order to avoid adverse effects on inflation expectations, attain an orderly adjustment of relative prices, and enable the convergence of inflation to the 3% target,” Banxico said.

Keywords: Bank of Mexico, Banco de México.

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