Bank of Mexico upbeat on inflation, growth; end of rate-hike cycle in view

By Anthony Esposito and Isabel Woodford

MEXICO CITY (Reuters) – The Bank of Mexico on Wednesday issued more upbeat forecasts for inflation and economic growth, while highlighting that the end of its 17-month interest rate hiking cycle could be in sight.

Banxico, as the Mexican central bank is known, said headline inflation likely peaked in the third quarter and was expected to begin dropping from the fourth quarter, with “more noticeable decreases throughout 2023.”

Official data showed Mexico’s annual headline inflation hit 8.14% in the first half of November, down from 8.53% a month earlier, while the core price index, which strips out some volatile food and energy prices, continued to trend up to 8.66%.

Banxico board member Jonathan Heath, during a presentation of the central bank’s quarterly report, said core inflation was the bank’s biggest concern, even as it forecast that it would begin to fall in the first quarter of 2023 and reach its 3% target in the third quarter of 2024.

The Mexican central bank has already increased its key interest rate by 600 basis points during the monetary policy tightening cycle that began in June 2021, but Banxico Governor Victoria Rodriguez said at least one more increase was being considered.

Heath, one of the board’s more hawkish members, said the hiking cycle could be nearing its end. “We still plan to increase the rate a bit more, I don’t think by a lot more. And I believe we are approaching what could be the terminal rate,” he said.

Banxico forecast that Mexico’s gross domestic product (GDP) would grow between 2.8% and 3.2% in 2022, a notable increase from its previous estimate of 1.7%-2.7% growth.

For 2023, the bank forecast that growth would sit between 1.0% and 2.6%, again up from its prior estimate of 0.8% to 2.4%.

Mexico’s economy has grown across the board for the past three quarters, expanding 0.9% in the third quarter, despite the central bank’s aggressive monetary tightening cycle.

(Reporting by Anthony Esposito and Isabel Woodford; Editing by Brendan O’Boyle, Elaine Hardcastle and Paul Simao)