Mexico: Central bank raises rates to 7% as expected

The Bank of Mexico (Banxico) rose the overnight interest rate from 6.75% to 7.0%, as most analysts expected. The rate is now at the highest level since March 2009. 

It is the tenth consecutive rate hike and according to some analysts, it could be the last one of the tightening cycle. One member of the Board voted to keep rates unchanged. 

Today’s June mid-month report showed the annual inflation rate at 6.60% (highest since 2009), a year ago it was at 2.55%. The central bank has been raising rates in order to bring inflation back to the 2-4% target. According to the statement, the intention of the bank is to anchor inflation expectations. 

Regarding the economy, they see risks tilted to the downside. They expected inflation to reach a peak in coming months and then, move to the target, around 4Q of next year.

The Mexican peso rose further against the US dollar after the decision. It is still down for the week but USD/MXN is approaching again the 18.00 handle.