Mexico’s central banker sees core inflation peaking and further rate hikes

MEXICO CITY, Feb 2 (Reuters) – Bank of Mexico board member Jonathan Heath said core inflation in Mexico is expected to peak in the first quarter and then begin a “not-so-fast” downward trajectory. “, anticipating that the bank could raise its key rate by 25%. or 50 basis points next week.

Heath said in a podcast published Wednesday by Mexico’s Banorte bank that inflation is expected to end 2022 very close to 4% and converge “much closer” by mid-2023 to Banxico’s 3% target, as the Bank of Mexico is known.

Mexico’s headline inflation fell slightly to 7.13% in early January from the last half of December, still more than double the central bank’s 3% target rate, while core inflation, which excludes certain volatile elements, reached its highest level in more than 20 years. .

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“This inflation bubble, I think we can properly call it pandemic inflation, is coming precisely in the wake of the pandemic, which has caused all the disruptions in value chains around the world,” Heath said.

At its last monetary policy meeting in December, Banxico intensified its efforts to contain soaring inflation, raising the benchmark interest rate by 50 basis points to 5.50%, its fifth consecutive meeting of hikes. rates.

“It’s very clear to me that the February debate, as the market itself and the analysts are saying, well I think it’s clear that there will be a rate hike in February and the debate will be whether it will be 25 or 50 (base points),” Heath said.

The next meeting will be on February 10.

Heath noted that after the monetary policy meeting in February, Banxico’s future moves would depend on any decisions made by the US Federal Reserve and just seeing how Fed hikes come and go with them at precisely that same pace. .

He said that starting in March, it would be difficult to maintain a “50 basis point (higher) pace” due to an expected cycle of hikes by the US Federal Reserve.

Heath said a lack of private investment would likely keep economic growth depressed in 2022, adding that gross domestic product growth could be below 2%.

Mexico’s economy contracted in the fourth quarter for the second consecutive quarter, plunging it into a technical recession.

Some of President Andres Manuel Lopez Obrador’s policy decisions, particularly in the key energy sector, have spooked investors.

Heath said global supply chain disruptions, the evolving pandemic and the impact of an outsourcing law hurt Mexico’s economy in 2021, but added that if “these factors negatives subsided”, the economy could grow by more than 3% and almost 4% this year.

Lopez Obrador predicted economic growth of 5% for 2022 on Wednesday.

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Reporting by Ana Isabel Martinez, Miguel Angel Gutierrez and Anthony Esposito; Written by Valentine Hilaire; Editing by Barbara Lewis, Chizu Nomiyama and Bernard Orr

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