USD/MXN Jumps as Bank of Mexico Hikes Rates by 25 Basis Points

Bank of Mexico, Banxico, Inflation, Federal Reserve, USD/MXN – Talking Points

• Banxico hikes overnight rate by 0.25% to 5%, in-line with expectations
• USD/MXN pushing higher in initial trade, trading as high as 20.65
• Inflation continues to remain hot,, with annual CPI reaching 6.24% in October

The Bank of Mexico raised the country’s overnight rate by 25 basis points (bps) for the fourth consecutive meeting in an effort to combat rampant inflation in the country. The hike came right in line with expectations, with most economists on the street predicting a hike to 5%. The final vote on raising rates was 4-1, led by central bank Governor Alejandro Diaz de Leon.

The tighter monetary policy in Mexico comes as the country battles rampant inflation, which has hovered around 6% since April. Annual inflation rose to 6.24% in October, far exceeding the central bank’s 3% target. Despite the elevated levels of inflation, central bankers may have been pushed away from more aggressive hikes as the country’s economy contracted during Q3. Mexico finds itself mirroring other emerging markets, aggressively increasing borrowing costs to reign in increases in inflation.

USD/MXN 15 Minute Chart

Chart created with TradingView

The Bank of Mexico highlighted in its policy statement that core inflation is expected to be 6.8% at year end, ultimately falling to 5.5% at the end of 2022. Like the Federal Reserve, Banxico policymakers reiterated that many of the factors currently impacting inflation are considered to be transitory. Despite this, inflation risks remain skewed to the upside according to the statement. For future monetary policy decisions, Banxico stated it will monitor the behavior of inflationary pressures and inflation expectations.

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— Written by Brendan Fagan, Intern

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