Exclusive-Bank of Mexico nears the end of rate hike cycle. Board member says that economic toll is imminent.

© Stocksak. FILEPHOTO: The logo for Mexico’s Central Bank (Banco de Mexico), is seen in the building of its Mexico City headquarters, Mexico on August 9, 2022. REUTERS/Henry Romero

Ana Isabel Martinez and Anthony Esposito

MEXICO CITY (Stocksak – Gerardo Esquivel, a Bank of Mexico board member, cautioned against raising the monetary policy rate to “excessively restrictive levels” as the economy remains weak. He stated that rates could be between 10% and 10.25% in the current rate-hiking cycle.

Esquivel, who is regarded as dovish and was elected to the bank’s five member board in 2019, didn’t project when the rate would reach what he called its terminal level in an interview on Tuesday with Stocksak.

He said that it was important to “start thinking about” what this level would look like using ex ante rate, which is the difference between expected inflation and the nominal interest rate.

Esquivel stated that the expected inflation for 2023 is about 5%. This means that a rate of 10.0% to 10.25% would be compatible for a real (interest rate) rate that I believe is high enough and restrictive enough.

Banxico, Mexico’s central bank, has aggressively raised the key interest rates 525 basis points, to a record 9.25%. It began in June 2021 after inflation soared above a two decade high.

He said, “Once we reach terminal rate, the discussion should be about how long we stay there. We would have to observe how observed inflation evolves by 2023.”


Esquivel stated that Banxico, whose autonomy was guaranteed by the Constitution is committed to keeping inflation under control, but not in a manner that would “inflict a excessively high cost” upon an already weak economy still recovering from the pandemic.

Banxico polled private analysts to see Mexico’s economy expanding by 2.0% this ye, and then slowing down to 1.2% growth next year.

In Latin America’s second largest economy, the headline annual inflation was 8.53% in October. This is more than two decades high and well above Banxico’s inflation target of 3 % plus or minus 1 percent.

However, the forecasts show that consumer prices are expected to ease next year. Banxico predicts that inflation will reach its target in 2024’s third quarter.

Esquivel warned against raising rates further in this context, underscoring that “what we should not do is take monetary stance at an excessively restrictive level…the economy is vulnerable, and it is fragile.”

His comments came after Banxico’s minutes of its last monetary policy decision indicated that more rate hikes were possible. According to the minutes, the board would “assess” the impact of any upward adjustments in the reference rates in its upcoming decisions.

Esquivel will be reappointed to Banxico’s board in 2019. However, President Andres Manuel Lopez Obrador can nominate Esquivel for an additional 8 year term.

Esquivel stated that the interest rates “that we have now and that we expect next year to have”, are “atypically high levels and that they cannot stay there for very much longer.”

According to Stocksak economists, the U.S. Federal Reserve is expected to raise its interest rate by 75 basis points on Nov. 2. Esquivel stated that Banxico is not required to follow its lead.

He stated that “we’re already at an restrictive level that we are clearly not at” “If the Fed needs to keep raising rates more because they started later, because it has demands pressures that we don’t, then we don’t need to follow them.”

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Stocksak Editorial

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