Friday, March 24

Mexico’s president lets slip central bank’s announcement of rate hike to 6.5%

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MEXICO CITY — Mexico’s central bank on Thursday voted to raise its benchmark interest rate by 50 basis points to 6.5%, a decision that was unexpectedly announced hours ahead of schedule by President Andres Manuel Lopez Obrador in a breach of norms.

The unanimous decision by the Bank of Mexico’s five-member board was in line with a Reuters poll of analysts which forecast the bank would set a rate of 6.5%, the seventh hike in a row.

The central bank’s deputy governor Galia Borja denied that the announcement by the President could harm the entity’s autonomy.

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“The decision was made among the five members at the monetary policy meeting with complete independence,” she said.

The bank cited tightening global monetary and financial conditions, and the prevailing uncertainty and rising inflationary pressure linked to geopolitical conflict, an apparent nod to the war in Ukraine.

“The balance of risks for the trajectory of inflation within the forecast horizon has deteriorated and remains biased to the upside,” the bank said in its policy statement.

Earlier, while speaking about inflation, Lopez Obrador noted the US Federal Reserve had last week raised its key lending rate for the first time since 2018, then said Mexico’s central bank had voted to hike its benchmark rate by 50 basis points.

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“We’re going to have an interest rate of 6.5 (percent),” he said, speaking at a regular morning news conference. “The Bank of Mexico took the decision yesterday unanimously, and we respect the Bank of Mexico’s autonomy.”

The bank declined to comment on the unexpected announcement. The president’s office did not reply to a request for comment on whether Lopez Obrador had spoken in error.

“The President undoubtedly has to know about these things. What happens is that there are times and channels of communication, and the bank has always been respectful and careful with them,” said Borja later, adding that she doesn’t think the members of the Executive should be left out of the next policy meetings.

The peso currency extended gains against the dollar shortly after the president made his remarks, trading about 0.60% firmer against the US currency at around 20.09 pesos per dollar.

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Gabriela Siller, an economist at Banco Base, said revealing the rate decision in advance would be unprecedented and a “scandal” that raised questions about the bank’s autonomy.

“Such cavalier comments by the president, coming alongside his interventionist plans (especially in the energy sector), suggest that the poor investment climate in Mexico is unlikely to improve anytime soon,” Capital Economist said in a note to clients.

Mexico is currently holding its annual banking convention in Acapulco, with top finance officials due to attend, including the new governor of the central bank, Victoria Rodriguez.

The central bank board’s policymaking decision, which normally takes place on Wednesday evening, was moved forward a few hours to help with the arrangements for the convention, according to a person familiar with the matter.

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The bank declined to comment.

Mexican policymakers face a delicate balancing act between taming high inflation while not choking off fragile economic growth, which had stalled at the end of last year. The economy ministry has forecast the economy would expand around 2.5% in 2022.

In recent months inflation in Mexico had been hovering at levels last seen in 2001.

Inflation hit 7.29% in the first half of March, slightly lower than a month earlier, but about double the central bank target rate of 3%, which has a one percentage point tolerance range above and below that. (Reporting by Anthony Esposito and Dave Graham; Editing by David Gregorio)



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