Mexico and Colombia undertake sharp charge hikes amid cussed inflation By Reuters

© Reuters. FILE PHOTO: The brand of the Central Financial institution of Mexico (Banco de Mexico) is seen at its constructing in downtown Mexico Metropolis, Mexico August 9, 2022. REUTERS/Henry Romero/File Photograph

By Brendan O’Boyle and Nelson Bocanegra

MEXICO CITY/BOGOTA (Reuters) – Central banks in Mexico and Colombia accelerated their financial coverage hike cycles on Thursday to deal with inflationary pressures, at the same time as some policymakers elsewhere within the area search to place charge hikes on maintain .

The 5 members of the Financial institution of Mexico board voted to lift the nation’s benchmark rate of interest by 75 foundation factors to a report 9.25%, whereas Colombia’s central financial institution raised its charge curiosity from 100 foundation factors to 10% in a cut up choice.

The strikes observe within the footsteps of the Federal Reserve’s current three-quarters-point improve, the third straight improve of this dimension by the U.S. central financial institution.

Mexico’s central financial institution, generally known as Banxico, cited “the continued tightening of world monetary circumstances and the setting of great uncertainty” as key challenges shifting ahead.

Mexican policymakers have now raised charges by 525 foundation factors because the begin of the present hike cycle in June 2021, as inflation exceeded the financial institution’s 3% goal, plus or minus one proportion level, to hit a greater than two-decade excessive of 8.76% within the first half of September.

Banxico mentioned its board “will assess the extent of upward changes to the benchmark charge for its subsequent coverage selections primarily based on prevailing circumstances.”

“We count on Banxico to proceed its coverage tightening to keep away from additional unanchoring of inflation expectations amid stubbornly excessive inflation,” mentioned Carlos Morales, sovereign director at Fitch Rankings, who forecast the coverage charge to hit 10% d finish of the yr.

Colombia’s central financial institution board was cut up on how one can increase the speed, with six policymakers backing the 100 foundation level hike and one voting for 50 foundation factors.

Analysts have constantly raised their inflation forecasts for Colombia. If the expectations of a Reuters survey are met, Colombia’s annual inflation will probably be 11.25% within the 12 months ending in September, greater than the ten.84% ​​recorded in August and virtually 4 instances the the financial institution’s long-term goal of three%.

Colombia’s central financial institution board, like Banxico, mentioned charge hikes exterior the area have been a think about Thursday’s choice.

“Financial coverage in developed nations has grow to be extra restrictive than anticipated, which has translated right into a deterioration of worldwide monetary circumstances and a big depreciation of the peso and different currencies,” the board mentioned in a press release. communicated.

“Fears of a worldwide recession have elevated, driving commodity worth cuts,” the board mentioned.

Final week, a ballot by Chile’s central financial institution confirmed merchants count on the nation to lift its rate of interest by 50 foundation factors to 11.25%.

Elsewhere in Latin America, nonetheless, some policymakers have signaled that they might be prepared to finish their tightening cycles.

Brazil’s central financial institution halted an aggressive financial tightening cycle final week, voting to keep up its benchmark rate of interest after 12 consecutive will increase, taking it to 13.75%.

“The method of elevating rates of interest ought to come to an finish. What we will see subsequent yr is possibly rates of interest taking place,” mentioned Brazil’s Financial system Minister Paulo Gedes, September 19.

In Peru, Central Financial institution President Julio Velarde mentioned on Wednesday that the nation’s benchmark rate of interest “in all probability” does not must rise way more, after greater than a yr of consecutive hikes in an setting of excessive inflation.