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

Economy Mar 24, 2022 09:31PM ET
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© Reuters. Mexican President Andres Manuel Lopez Obrador speaks during a news conference at the National Palace in Mexico City, Mexico March 24, 2022. Mexico Presidency/Handout via REUTERS

MEXICO CITY (Reuters) -Mexico's central bank on Thursday voted to raise its benchmark interest rate by 50 basis points to 6.5%, a decision that was unexpectedly announced hours ahead of schedule by President Andres Manuel Lopez Obrador in a breach of norms.

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

The unanimous decision by the Bank of Mexico's five-member board was in line with a Reuters poll of analysts which forecast the bank would set a rate of 6.5%, the seventh hike in a row.

The bank cited tightening global monetary and financial conditions, and the prevailing uncertainty and rising inflationary pressure linked to geopolitical conflict, an apparent reference to the war in Ukraine.

"The balance of risks for the trajectory of inflation within the forecast horizon has deteriorated and remains biased to the upside," the bank said in its policy statement.

Earlier, while speaking about inflation, Lopez Obrador noted the U.S. Federal Reserve had last week raised its key lending rate for the first time since 2018, then said Mexico's central bank had voted to hike its benchmark rate by 50 basis points.

"We're going to have an interest rate of 6.5 (percent)," he said, speaking at a regular morning news conference. "The Bank of Mexico took the decision yesterday unanimously, and we respect the Bank of Mexico's autonomy."

The peso currency extended gains against the dollar after the president made his remarks, and closed on Thursday at its strongest level since late September.

Still, several analysts expressed shock and alarm that the president had revealed the decision early.

Gabriela Siller, an economist at Banco Base, said revealing the rate decision in advance was unprecedented and a "scandal" that raised questions about the bank's autonomy.

Galia Borja, one of the Bank of Mexico's board, denied that the president's move would compromise the bank's autonomy and said that it had made its decision completely independently.

Mexico is currently holding its annual banking convention in Acapulco, with top finance officials due to attend, including the new governor of the central bank, Victoria Rodriguez.

The central bank board's policymaking decision, which normally takes place on Wednesday evening, was moved forward a few hours to help with the arrangements for the convention, according to a person familiar with the matter.

While attending the convention on Thursday evening, Lopez Obrador said he thought the bank's decision had already been announced when he spoke in the morning.

"I want to apologize to the governor of the bank and the deputy governors because I received the information last night that they had taken the decision," he said.

Mexican policymakers face a delicate balancing act between taming high inflation while not choking off fragile economic growth, which stalled at the end of 2021. The economy ministry has forecast the economy will expand about 2.5% in 2022.

Inflation hit 7.29% in the first half of March, slightly lower than the previous two-week period, but more than double the central bank target rate of 3%. The bank has a one percentage point tolerance range above and below the target.

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

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