By Brendan O’Boyle and Anthony Esposito
MEXICO CITY (Reuters) -The Bank of Mexico’s five-member governing board unanimously voted to increase the benchmark interest rate by 50 basis points to 11.00% on Thursday, above market forecasts, citing a complex inflation scenario and suggesting future hikes would be smaller.
The decision by Banxico, as the central bank is known, comes hours after data showed consumer prices in Latin America’s second largest economy rising in January above December readings and market expectations.
“Given the dynamics of core inflation, on this occasion it is necessary to continue with the magnitude of the reference rate adjustment of the previous policy meeting, in order to be in a better position to tackle a still-complex inflation environment,” Banxico said in its post-meeting statement.
After the bank moved, Mexico’s peso currency strengthened, up 0.84% versus the U.S. dollar.
Banxico had been widely expected to increase the key rate by 25 basis points, following in the footsteps of the U.S. Federal Reserve.
“The decision was unanimous. The authority is thus sending a strong message in its fight against inflation,” CI Banco wrote in a note to clients.
Banxico has now raised its benchmark interest rate by 700 basis points during the current hiking cycle, which began in June 2021, as inflation surged past its target of 3%, plus or minus 1 percentage point.
While inflation has been easing since hitting an over two-decade year high of 8.70% in August and September, it still remains far above Banxico’s target.
Banxico suggested that while its rate hiking cycle was not over, future increases could be smaller.
“The board considers that, given the monetary policy stance already attained and depending on the evolution of incoming data, for its next policy meeting, the upward adjustment to the reference rate could be of lower magnitude,” the Mexican central bank said.
Moody’s Analytics director Alfredo Coutino, the only analyst in a Reuters poll to correctly forecast a 50 basis points hike, said the board’s decision “goes in the right direction” for curbing inflation.
“We consider it’s not yet possible to say that the rate-hiking cycle has reached its end,” he added in a statement after Banxico’s announcement.
(Reporting by Anthony Esposito and Brendan O’Boyle; Additional reporting by Noe Torres; Editing by Chris Reese, Diane Craft and Jonathan Oatis)