Mexico central banker sees core inflation peaking, more rate hikes
February 2, 2022
MEXICO CITY (Reuters) -Bank of Mexico board member Jonathan Heath said core inflation in Mexico should peak in the first quarter and then begin a “not so fast” downward trajectory, anticipating the bank could hike its key interest rate by 25 or 50 basis points next week.
Heath said in a podcast published on Wednesday by Mexican bank Banorte that inflation should conclude 2022 very close to 4% and should converge “much closer” by mid-2023 to the 3% target of Banxico, as the Bank of Mexico is known.
Mexican headline inflation eased slightly to 7.13% in early January from the last half of December, still more than double the central bank’s target rate of 3%, while a measure of core inflation hit its highest level in over 20 years.
“This inflation bubble, I think we can properly name it pandemic inflation, arises precisely in the wake of the pandemic, which has caused all the disruptions in value chains globally,” said Heath.
At its last monetary policy meeting in December, Banxico stepped up efforts to rein in surging inflation https://www.reuters.com/markets/us/mexican-central-bank-hikes-rates-more-than-expected-tame-inflation-2021-12-16, raising the benchmark interest rate by 50 basis points to 5.50%. It was the fifth consecutive meeting it hiked rates.
“It’s very clear to me that the debate for February, as the market itself and the analysts are saying, well I think it’s clear that there will be a rate hike in February and the debate will be whether it will be 25 or 50 (basis points),” said Heath.
The next meeting will take place on Feb. 10.
“The question is what to do from March onwards, I think it will be difficult to continue with the rhythm of 50 basis points (hikes) each time. Why? Because the Federal Reserve’s cycle of hikes is just around the corner,” said Heath.
(Reporting by Ana Isabel Martinez and Miguel Angel Gutierrez; Writing by Valentine Hilaire; Editing by Barbara Lewis, Anthony Esposito and Chizu Nomiyama)