Bank of Mexico hikes rate again as inflation spirals

By Anthony Esposito and Dave Graham

MEXICO CITY (Reuters) – The Bank of Mexico raised its benchmark interest rate by 25 basis points for the fourth straight policy meeting on Thursday, taking it to 5.00%, in a 4-to-1 vote by its governing board, as the central bank expressed concern about above-target inflation.

The decision was in line with a Reuters poll of analysts and comes as consumer price inflation rose 6.24% in the year through October, more than double the central bank’s 3% target, plus or minus one percentage point.

“The shocks that have increased inflation are largely considered to be transitory. Nevertheless, the horizon in which they could affect it is unknown, and they have involved a wide range of products, while being of considerable magnitude,” the bank said in its policy statement.

This poses greater risks to the price formation process and to inflation expectations, said Banxico, as the Mexican central bank is known.

Banxico forecast average annual headline inflation of 6.8% for the fourth quarter, above a prior forecast of 6.2%, while the core index, which strips out some volatile items, is seen averaging 5.5% over the same period, versus a prior view of 5.3%.

At upcoming monetary policy meetings, Banxico said its five-member board “will assess thoroughly the behavior of inflationary pressures as well as of all factors that have an incidence on the foreseen trajectory for inflation and its expectations.”

On economic growth, Banxico underscored that preliminary data indicated the Mexican economy contracted during the third quarter, although it is expected to resume its recovery starting in the fourth quarter.

“An environment of uncertainty persists and slack conditions are anticipated, with significant differences across sectors.”

(Reporting by Anthony Esposito and Dave Graham; Editing by Chizu Nomiyama)

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