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Economy & Business - October 2021

ECONOMIC HIGHLIGHTS

MEXICO | Cycle of interest rate hikes to continue. On 30 September, the governing board of Mexico’s central bank (Banxico) raised the benchmark interest rate by 25 basis points to 4.75% in a split 4-1 decision. This is the third consecutive rate hike enacted by Banxico and was widely expected by the financial markets. Banxico cited global inflationary pressures in its decision, noting that “although the shocks that have increased inflation are expected to be transitory”, they represent a risk to inflation expectations “due to their variety, magnitude, and the extended horizon over which they have affected [inflation]”. Annual headline inflation came in at 5.87% in the first fortnight of September, well outside of the 3% +/-1 target range, and Banxico has revised up its forecast for this year: it now expects inflation to close 2021 at 6.2%, up from a forecast of 5.7% at the end of August. Shortly after this latest rate hike, Banxico deputy governor Jonathan Heath said that one or two further increases were to be expected. “This is my personal opinion, that the cycle of hikes is not over yet, that perhaps we’re not too far from the end. Of course, this will depend much on the evolution of many different indicators”, Heath told newswire Reuters in an exclusive interview on 4 October.   

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