The Bank of Mexico (Banxico) raised the interest rate by 50 basis points to 11%, the highest percentage in its history before the highest inflation levels in two decades.
“The Governing Board evaluated the magnitude and diversity of the shocks that have affected inflation and its determinants, as well as the evolution of medium- and long-term expectations, and the price formation process,” the institution indicated.
The rise contrasted with the increase of 25 points announced by the Federal Reserve of the United States (Fed) last week.
Thus, The announcement exceeded market expectations after revealing yesterday that Mexico’s inflation rate rose to 7.91% in January, an increase compared to 7.82% in December, its highest level for a year-end in the current century.
The movement by the central bank will be reflected in the increase in the cost of loans offered by banking institutions to the population.
Faced with this situation, specialists call on people to review their economic situation and ability to pay in detail before venturing to contract a loan.
José Ignacio Martínez, coordinator of the Laboratory of Analysis in Commerce, Economy and Business (Lacen), of the National Autonomous University of Mexico (UNAM), pointed out that This rise in inflation and in the interest rate has repercussions in a reduction in private consumption in the domestic market.
“Another factor is the decrease in business investment, since it makes loans, financing, and mortgages more expensive, affecting the growth of primary, secondary and tertiary activities, thereby affecting private consumption and job creation,” added the expert.
The central bank seeks to prevent inflation from skyrocketing. EFE/M. Guzman
Loans to cards and large companies, hit by inflation
The Bank of Mexico raised its rate 50 points to a record high of 11%, given an inflationary scenario that does not subside in the Mexican economy. The increase reaches a level not seen since the inflation targeting strategy began in our country in 2001.
The most recent data from the Association of Banks of Mexico (ABM), available at the end of November 2022, with an interest rate of 10%, showed that The credit that has become more expensive is that directed to large companies, with an average rate of 11.59%, this is an upward adjustment of 4.85 percentage points. For their part, credit cards have become more expensive on average, 4.14 percentage points, reaching a rate of 37.27 percent.
In the case of credit to SMEs, the rate has increased by 3.36 percentage points, reaching an average of 14.53 percent. While, personal credit has reached an average rate of 47% and automotive credit of 14.27 percent.
The banks note that the increase in the reference rate by Banxico is not reflected immediately or to the same magnitude in the various credit options that exist in the market, coupled with the competition that stops the price of this type of product.
In addition, specialists call on the population that is considering taking out a loan at this time to review in detail their economic situation and ability to pay to avoid problems of over-indebtedness, since for now the cost of money is higher.
It should be remembered that the credits contracted previously and at a fixed rate do not have any movement before the increase in the Bank of Mexico rate.
THE VOICE OF THE EXPERT
Banxico turns off its FED policy
Gabriela Siller, director of economic and financial analysis of Banco Base
For Gabriela Siller, director of economic and financial analysis at Banco Base, “Banxico disassociates itself from the monetary policy of the US Federal Reserve (FED), which raised its interest rate by only 25 base points, but due to inflation in Mexico It’s not for less.”
He added that The high general inflation, which picked up last January to reach 7.91%, influenced this decision by Banxico, since, in contrast, the United States has fallen for six consecutive months in its inflation rate.
In this sense, he said that “there are still significant inflationary pressures in Mexico, especially the service sector is concerned, which has shown high inflation not seen in more than 17 years.”
The analyst pointed out that The market expects Banxico to raise its interest rate again and close 2023 at a level of 11.5 percent.
The most recent report from Moody’s rating agency agrees that “it cannot yet be affirmed that the monetary cycle of increases has come to an end”, given the “unfavorable inflation data in January”.
The specialist highlighted that in our country “the pressures persist in the food merchandise subcomponent, with an annual inflation of 14.08%. And I also emphasize the worrying inflation of services, which was located at an annual rate of 5.51%, not seen since May 2003.”
Siller shared that Banco Base expects inflation to drop to 5.1% by December of this year.
Ricardo Sheffield, head of Profeco, indicated that during this week the average price per kilo in the country is between 36 and 42 pesos, this medium observed it at more than 52 pesos in a supply market business. EFE/J. mendez
Reasons behind the increase
Inflation in Mexico recorded a rebound in January for the second consecutive month and reached a annualized rate of 7.91 percent.
The acceleration in inflation was partly due to the rise in some foods such as chicken, lemons, and bananas, and the increases in water supplies, low-octane gasoline, restaurants, and housing.
Besides, subjacent inflation —which determines the trajectory of prices in the medium and long term— registered a new increase in January and reached an annualized rate of 8.45%, with which it accumulates 25 continuous months of increases.
To deal with this acceleration, Banco de México announced a new increase of 50 basis points in interest rates.
With this measure, the monetary agency seeks by way of discouraging consumption to stop the rise in prices. Previously, President Andrés Manuel López Obrador had activated an anti-inflation plan since May 2022 that involved an agreement between the government and the private sector not to increase the prices of 24 basic basket products for six months.
López Obrador has also maintained a fuel subsidy and has not made adjustments to electricity service rates, measures that according to analysts have been essential to contain the acceleration of inflation.
The “superweight” comes out stronger
The price of the peso against the dollar strengthened after the Bank of Mexico’s Governing Board announced the increase in its main interest rate.
The Mexican currency in international markets is offered at 18.76 units per dollar wholesale, which means an appreciation of 0.93% or 18 cents compared to the previous closing, explica Bloomberg.
Given this, the peso would rise two days, with which it would accumulate a gain of 1.02% or 19 cents in the week to settle at its lowest level since last February 2, which closed at 18.64 units.
For his part, the retail dollar is sold at 19.24 pesos at bank windows, according to data from CitiBanamex.
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