The Bank of Mexico (Banxico) raised the interest rate to 7% on Thursday, which represents a fourth increase of 50 basis points and the eighth consecutive increase in the target in the face of the highest inflation in the last two decades.

The Governing Board evaluated the magnitude and diversity of the shocks that have affected inflation and its determinants, as well as the risk that medium- and long-term expectations and price formation are contaminated, the central bank said in its announcement. .

The increase was within market expectations after it was revealed on Monday that headline inflation rose in April to 7.68%, its highest level since January 2001, according to the National Institute of Statistics and Geography (Inegi).

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With the increase, the autonomous body argued that it seeks the "orderly and sustained convergence of general inflation to the 3% goal in the period in which monetary policy operates, as with an adequate adjustment of the economy and financial markets. ”.

Faced with a more complex outlook for inflation and its expectations, action with greater force will be considered to achieve the inflation target, amid pressures greater than those anticipated, for which the forecasts for headline and core inflation were revised upwards, warned in his statement.

Banxico now forecasts that average headline inflation will rise 6.4% annually in the last quarter of 2022 after the previous expectation of 5.5%, while average core inflation will increase 5.9% at the end of this year compared to a previous estimate of 5.2%.

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As upside risks, the Governing Board enunciated the persistence of underlying inflation at high levels and external inflationary pressures derived from the pandemic, as well as greater pressures on agricultural and energy prices due to the geopolitical conflict, in reference to the war in Ukraine, in addition to currency depreciation and cost pressures.

The balance of risks with respect to the expected trajectory for inflation in the forecast horizon remains biased to the upside and has continued to deteriorate, acknowledged the

Board of Governors noting that convergence to the 3% inflation target will not be achieved until the first quarter of 2024.

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