Bloomberg — Deputy Governor Irene Espinosa said the Banco de Mexico will have to push interest rates higher in order to bring inflation under control.
“Core inflation has been very resistant to decline,” Espinosa told Bloomberg Television’s Mark Cudmore and Francine Lacqua in an interview. “It is clear that sources of inflationary pressure are there and there is the need for an additional monetary effort”
Banco de Mexico, which has continued raising interest rates even while some of Latin America’s inflation-targeting central banks have stopped, has increased borrowing costs 700 basis points since June 2021. Analysts in a Citi survey published this week forecast that the bank will hike by a quarter-point at its next decision March 30, though the US Federal Reserve’s upcoming decision could influence Banco de Mexico’s next move.
Espinosa, Banxico’s longest-serving board member, was in favor of the 50 basis-point hike agreed upon in the February decision but dissented in the minutes on the grounds that the bank should be “extremely cautious” with forward guidance. Banxico, as the bank is known, had said in its post-decision statement that its next upward adjustment to the key rate could be “of lower magnitude.”
Inflation in Mexico is running at 7.5% after touching 8.8% last year.
“The prints of inflation lately have brought some good news, nevertheless we’re in a very complex and uncertain environment, so we’ve to be very careful about how to give forward guidance,” Espinosa said.
Espinosa said at an annual banking convention last week that she thought the Mexican banking system was safe from the kind of of shocks hammering other countries recently, largely because it’s well-capitalized and has a common regulatory framework. The country’s top finance official agreed, saying that there was no chance of broad contagion.
“All of the central banks in the world are worried about what’s happening in the banking sector,” she said Wednesday. “I would say we are confident the Mexican banking sector is in a very resilient condition. It’s well capitalized, there’s enough liquidity.”
--With assistance from Thomas Gualtieri, Francine Lacqua and Mark Cudmore
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