Mexico Central Bank Makes Record Rate Increase, Flags More Hikes

• The Bank of Mexico (Banxico) on June 23^rd increased its benchmark interest rate by a record 75 basis points to 7.75%, noting that more rate hikes would be forthcoming, if necessary, as the central bank seeks to tame galloping inflation. 
• Banxico, has been raising rates as it tries to moderate spiraling consumer prices, having increased the benchmark rate by 375 basis points since mid-2021. Of note, domestic inflation hit an annualized rate of 7.88% in the first half of June 2022, well above the central bank's target of 3%, plus or minus one percentage point, data earlier in the day showed. 
• Thursday's move echoes the Federal Reserve's hike last week by three-quarters of a percentage point, its largest increase in more than 25 years, and comes as policymakers in regional powerhouse Brazil also raised rates to 13.25% and penciled in another hike for August. 
• Banxico underscored that in addition to inflationary shocks stemming from the COVID-19 pandemic, there are pressures linked to Russia's war in Ukraine and strict lockdown measures imposed by China. "The balance of risks for the trajectory of inflation within the forecast horizon is biased significantly to the upside," said Banxico. 
• In view of greater-than-anticipated pressures on prices, Banxico revised up its forecasts for headline and core inflation. However, the bank still expects inflation to converge to its 3% target in the first quarter of 2024. Carlos Morales, director, Latin America Sovereigns at Fitch Ratings projects that Banxico will hike rates to 8.5% by the end of 2022.

 (Source: Reuters)