MEXICO CITY: Mexico's central bank on Thursday (Friday in Manila) raised its benchmark interest rate for an eighth consecutive time to try to cool inflation that has hit the highest level in two decades.
The governing board decided to increase the interbank rate by half a percentage point, to 7.0 percent, the Bank of Mexico said, with one member favoring a three-quarters of a percentage point hike.
Consumer prices have been driven higher by the war in Ukraine and coronavirus lockdowns in China, which have affected global supply chains, a central bank statement noted.
Inflation in Mexico reached 7.68 percent year on year in April — the highest since January 2001, and well above the Bank of Mexico's target of around 3.0 percent.
"With low growth in Mexico, one might think that it's crazy that the Bank of Mexico raises its interest rate to 7.0 percent," tweeted Gabriela Siller, head of economic analysis for the financial group BASE.
"However, for Mexico, a high level of inflation slows down the economy more than a high interest rate," she added.
Without the monetary tightening, inflation would probably already be 10 percent or higher, Siller said.
The Bank of Mexico warned that the outlook for prices had continued to deteriorate.
Inflation could be further impacted by rising agricultural and energy prices due to the Ukraine conflict, the coronavirus pandemic and a weaker peso against the dollar.
On the other hand, it could ease in the future if the war abates and global supply chains improve, it added.
With concerns mounting about inflation and weaker US growth, the Bank of Mexico downgraded its economic outlook in March, forecasting growth of 2.4 percent this year.
Mexico's economy, the second largest in Latin America, grew by 1.6 percent in the first quarter of 2022 from a year earlier, according to a preliminary official estimate, extending a recovery from a deep pandemic-induced slump.