Bank of Mexico hikes rate to 10.50%, signals another increase coming

By Brendan O’Boyle and Anthony Esposito

MEXICO CITY (Reuters) -The Bank of Mexico raised its key interest rate by an expected 50 basis points to a record 10.50% on Thursday, tempering its monetary tightening pace amid a slowdown in inflation while suggesting it could hike rates at least once more.

The decision follows four consecutive 75-basis-point hikes and comes after the U.S. Federal Reserve increased its key interest rate by 50 basis points Wednesday after four consecutive hikes of its own of three-quarters of a percentage point.

Four of the bank’s five board members voted in favor of the half-percentage-point hike, with Gerardo Esquivel casting a lone vote for a 25-basis-point increase.

“The board considers it will still be necessary to raise the reference rate in its next monetary policy meeting,” said Banxico, as the Mexican central bank is known.

“Subsequently, it will assess if the reference rate needs to be further adjusted as well as the pace of adjustments based on the prevailing conditions,” it added.

After peaking in September, Mexican annual headline inflation in November slowed to 7.8%, its lowest level since May.

However, annual core inflation, which strips out some volatile food and energy prices, rose to 8.51%, foreboding more monetary policy tightening as Banxico works to get inflation to its target of 3%, plus or minus one percentage point.

Banxico has raised its benchmark by 650 basis points since June 2021, but its statement “made clear that the tightening cycle will soon draw to a close,” Jason Tuvey, Capital Economics’ senior emerging markets economist, said, forecasting another 25-basis-point hike in February.

Fitch Ratings predicted the benchmark rate will peak at 11% in 2023.

Banxico reiterated that inflation is projected to converge to its 3% target in the third quarter of 2024.

(Reporting by Brendan O’Boyle and Anthony Esposito; Editing by Leslie Adler)