MEXICO CITY, Oct. 4 (Reuters) – The Bank of Mexico’s rate hike cycle is still ongoing and one or two more rate hikes are likely due to inflation concerns, although all monetary policy moves are dependent on incoming data, Bank of Mexico Deputy Governor Jonathan said Heath.
Banxico, as the bank is known, expressed concern about above target inflation and, as expected, raised its key rate by 25 basis points to 4.75% in a four-for-one board vote on Thursday. Heath voted by a majority in favor of the rate hike.
“This is my personal opinion that the cycle of wanderings is not over yet, that we may not be too far from the end. This will of course depend heavily on the development of many different indicators,” Heath told Reuters in an interview on Monday.
“I think maybe we should see another (price) hike or two,” said Heath.
Banxico has raised the key rate by a quarter of a percentage point at each of its last three monetary policy meetings.
These monetary policy moves should help contain inflation in late 2021 or early next year, Heath said.
Mexican consumer prices rose 0.42% in the first half of September to an annual inflation rate of 5.87%, above the 5.59% for August and well above Banxico’s target rate of 3% plus or minus one percentage point.
Heath said annual headline inflation was likely “very close” to 6% for September as a whole, and core inflation, excluding some volatile food and energy prices, could be close to 5%.
The national statistics agency INEGI will publish inflation data for September on Thursday.
Inflation is likely to peak in February or March and fall in the second quarter of 2022 and hit the bank’s 3% target in the third quarter of 2023, Heath said.
While Banxico has stressed that the shocks affecting inflation are likely to be temporary, Heath said these shocks “accumulate” and could contaminate the pricing process.
“We are already seeing general price hikes and this is very worrying … We need to send the message that we are taking action to keep inflation from becoming a much more lazy problem,” said Heath.
He stressed that external factors such as the global shortage of semiconductors and domestic problems such as recurring railroad blockades in Mexico, which are preventing goods from reaching their destination, fueled inflation.
Reporting by Anthony Esposito; Editing by Cynthia Osterman
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