Mexican president lets slip central bank’s announcement of 50-bp rate hike to 6.5%

MEXICO CITY (Reuters) -Mexico’s central financial institution on Thursday voted to boost its benchmark rate of interest by 50 foundation factors to six.5%, a call that was unexpectedly introduced hours forward of schedule by President Andres Manuel Lopez Obrador in a breach of norms.

The president later apologized, saying he thought the choice had already been made public.

The unanimous resolution by the Financial institution of Mexico’s five-member board was in step with a Reuters ballot of analysts which forecast the financial institution would set a charge of 6.5%, the seventh hike in a row.

The financial institution cited tightening international financial and monetary situations, and the prevailing uncertainty and rising inflationary strain linked to geopolitical battle, an obvious reference to the conflict in Ukraine.

“The steadiness of dangers for the trajectory of inflation throughout the forecast horizon has deteriorated and stays biased to the upside,” the financial institution mentioned in its coverage assertion.

Earlier, whereas talking about inflation, Lopez Obrador famous the U.S. Federal Reserve had final week raised its key lending charge for the primary time since 2018, then mentioned Mexico’s central financial institution had voted to hike its benchmark charge by 50 foundation factors.

“We will have an rate of interest of 6.5 (p.c),” he mentioned, talking at a daily morning information convention. “The Financial institution of Mexico took the choice yesterday unanimously, and we respect the Financial institution of Mexico’s autonomy.”

The peso forex prolonged positive factors in opposition to the greenback after the president made his remarks, and closed on Thursday at its strongest stage since late September.

Nonetheless, a number of analysts expressed shock and alarm that the president had revealed the choice early.

Gabriela Siller, an economist at Banco Base, mentioned revealing the speed resolution prematurely was unprecedented and a “scandal” that raised questions in regards to the financial institution’s autonomy.

Galia Borja, one of many Financial institution of Mexico’s board, denied that the president’s transfer would compromise the financial institution’s autonomy and mentioned that it had made its resolution utterly independently.

Mexico is at present holding its annual banking conference in Acapulco, with prime finance officers on account of attend, together with the brand new governor of the central financial institution, Victoria Rodriguez.

The central financial institution board’s policymaking resolution, which usually takes place on Wednesday night, was moved ahead a couple of hours to assist with the preparations for the conference, in accordance with an individual accustomed to the matter.

Whereas attending the conference on Thursday night, Lopez Obrador mentioned he thought the financial institution’s resolution had already been introduced when he spoke within the morning.

“I wish to apologize to the governor of the financial institution and the deputy governors as a result of I obtained the knowledge final evening that that they had taken the choice,” he mentioned.

Mexican policymakers face a fragile balancing act between taming excessive inflation whereas not choking off fragile financial development, which stalled on the finish of 2021. The economic system ministry has forecast the economic system will develop about 2.5% in 2022.

Inflation hit 7.29% within the first half of March, barely decrease than the earlier two-week interval, however greater than double the central financial institution goal charge of three%. The financial institution has a one share level tolerance vary above and beneath the goal.

(Reporting by Anthony Esposito and Dave Graham; Enhancing by David Gregorio & Shri Navaratnam)