MEXICO’S central bank announced yesterday another big increase in its benchmark interest rate, to a record high, to try to tame the highest inflation in more than two decades.

The governing board’s decision to raise the interbank rate by three-quarters of percentage point to 9.25% was unanimous, the Bank of Mexico said.

It was the 11th consecutive hike and the third in a row of such a magnitude.

Inflation in Latin America’s second-largest economy reached 8.7% year-on-year in August – far above the central bank’s target of around 3%.

Upward price pressures stemming from the Covid-19 pandemic and the war in Ukraine continued to push up inflation, the Bank of Mexico said.

The central bank raised its inflation forecasts due to “inflationary shocks of a greater magnitude than anticipated and the prospect that their effects take longer to fade.”

It now expects the annual inflation rate to reach 8.6% in the fourth quarter of this year, up from 8.1% previously projected, and to remain above the 3.0% target until the third quarter of 2024.

Further interest rate increases are likely, the size of which would depend on whether inflation eases, the Bank of Mexico indicated.

“The governing board will assess the magnitude of upward adjustments in the reference rate at its next meetings according to the prevailing circumstances,” it said. – AFP, September 30, 2022.