Mexico’s largest bank has raised interest rates as the country struggles with rising prices

Bank of Mexico has raised interest rates higher than experts expect as it tries to tackle leadership changes as the country faces a sharp rise in inflation over the next two decades.

Banxico voted 4-1 on Thursday to raise prices by 0.5 percent to 5.5 percent after data showed that annual inflation hit 7.37 percent in November, its highest level in 20 years. Gerardo Esquivel, who voted against, instead it encouraged a slight increase by 0.25%.

“The risk of rising inflation within the forecast range has grown exponentially and was biased,” the agency said in a statement. words.

Analysts on average expect a five-member board to grow by 0.25 percent as it improves inflation, volatile growth and expectations that the US Federal Reserve will begin raising prices from the groundwater next year.

The bank is immediately facing internal challenges in managing the volatile transformation of the new administration. In November, Andrés Manuel López Obrador, President of Mexico, markets are volatile when he fired the man who had appointed him governor of the central bank and appointed him a lesser-known financial expert.

Victoria Rodríguez Ceja has been officially confirmed as Banxico’s next governor and will be the first woman to serve in the post, although critics have questioned her financial experience and the president’s independence.

Rodríguez Ceja, who is due to take over from current governor Alejandro Díaz de León on January 1, has vowed to end the rise in prices, without affecting global reserves and maintaining bank autonomy.

Like many other countries, Mexico is trying to reduce rising prices. From Brazil in Poland, central banks around the world are tightening monetary policy to curb rising prices.

The US Federal Reserve is in a state of shock, with Wednesday saying it hopes to raise interest rates three times over. next year.

In Mexico, the sharp rise was justified by rising inflation, low wages, weak pensions and uncertainty over the new ambassador’s turn, says Alonso Cervera, a Latin American economist at Credit Suisse.

“It was necessary for the central bank to accelerate the pace of growth based on recent inflation and current trends,” he said. However, he cautioned that this tightening pace would not continue.

“The market should not think that it is 50 [basis points] moving forward. ”

The bank is also embroiled in a Mexican economic slump, which suddenly collapsed in the third quarter. Recent data is showing a resumption, but experts have also reviewed the expected growth rate for 2021 to 5.7 percent, depending on each month. Banxico research.

“Growth data has been disappointing, and the 4Q rebound doesn’t look solid,” Morgan Stanley investigators wrote ahead of the ruling.

Thursday’s Peso grew sharply in one month against the dollar. It was last at 20.78 pesos to the dollar, a 6.3 percent move from the end of November when it reached its weakest level in 13 months.

Uncertainty over the management of the central bank has disrupted foreign exchange. Foreign investors pulled about $ 1.3bn from state security in November, while foreign investment also showed an outflow of nearly $ 4.8bn through November, according to BBVA experts.

“We expect foreign entry to remain stable, as uncertainties about the growing trend continue to rise due to the noise caused by the reorganization of the Banxico board,” investigators wrote in a statement Thursday ahead.

Additional reports of Kate Duguid in New York