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Thursday, October 21, 2021

EXCLUSIVE: The deputy governor of the Bank of Mexico sees more rate hikes coming

MEXICO CITY – The Bank of Mexico’s interest rate hike cycle is not over and inflation concerns are likely to rise one or two more, although any monetary policy move will depend on incoming data, said Bank of Mexico Deputy Governor Jonathan Heath.

Concerned about inflation above the target, Banksico, as the bank is known, raised its benchmark interest rate by 25 basis points to 4.75 percent on Thursday, as expected by a four-to-one vote on its regulatory board. Heath voted with a majority to increase the number.

“It is my personal opinion that the cycle of travel is not over yet, perhaps we are not too far from the end. Of course, this will depend on the evolution of many different indicators, “Heath told Reuters in an interview on Monday.

“I think we should still see one or two (rate) increases,” Heath said.

Deputy Governor Gerardo Esquivel, who single-handedly disagreed with last week’s monetary policy decision and voted to keep the rate stable at 4.50 percent, later protested that interest rate hikes could be “inefficient” and “counter-productive” in the current context.

In a presentation released by the bank, Esquivel argues that policy decisions can be interpreted as an indication that the observed inflation has a relatively stable character “which will respond to a ward upward cycle of interest rates.”

Bancisco has raised the price rate by a quarter of a percent in each of its last three policy meetings.

“In that sense, I think most of us agree, because what we’re seeing … actually increases inflation in a variety of sectors,” Heath said.

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Heath said that in order to control inflation, it should start helping to control inflation by the end of 2021 or early next year.

In the first half of September, Mexican consumer prices rose 0.42 percent to an annual inflation rate of 5.87 percent, well above 5.59 percent for August and well above Banksico’s target of 3 percent plus or minus one percentage point.

Heath said annual headline inflation for the full month of September is likely to be “very close” to 6 percent, and core inflation, which closes some volatile food and energy prices, could be closer to 5 percent.

INEGI, the national statistics agency, will release inflation data on Thursday, September.

Inflation is likely to peak in February or March and begin to decline in the second quarter of 2022, reaching the bank’s target of one percent in the third quarter of 2023.

Although Banksico stressed that the shocks that affect inflation are expected to be temporary, Heath said that these shocks are “accumulating” and that they could contaminate the price formation process.

Heath said: “We are already seeing a general increase in prices and this is a matter of great concern … We need to send a message that we are taking steps to prevent inflation from becoming a more inert problem.”

He stressed that inflation is hindering the delivery of goods to their destinations by external factors such as the global shortage of semiconductors and repeated railway blockades in Mexico.

Written by Anthony Esposito

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This News Originally From – The Epoch Times

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