Thursday, November 11, 2021

Trifecta of Latam cenbanks raise rates to curb inflation

     A trifecta of Latin American central banks - Mexico, Peru and Uruguay - raised their benchmark interest rates further to drive down inflation expectations that are continuing to rise amid inflation rates that are well in excess of the central banks' target.
     The Bank of Mexico (Banxico) raised its rate by another 25 basis points to 5.0 percent, its fourth rate hike this year, and has now raised the rate a net 75 points this year following earlier rate hikes in June, August and September.
     The Central Bank of Uruguay (CBU) raised its monetary policy rate by 50 basis points to 5.75 percent, its third hike this year, and has now raised it 1.25 percentage points this year following earlier hikes in August and October.
     The Central Reserve Bank of Peru (BCRP) raised its reference rate by 50 basis points to 2.0 percent, its fourth hike this year, and has now raised it 1.75 percentage points following earlier hikes in August, September and October.
     Today's three rate hikes boosts the number of rate hikes worldwide this year to 88, more than six times the number of rate cuts, with 39 of those cuts by emerging market central banks.
      As most central banks, Banco de Mexico considers the forces boosting inflation to be transitory but it also said the time horizon of this process is unknown and is affecting a wide range of products, while price increases are of a "considerable magnitude."
     "This poses greater risks to the price formation process and to inflation expectations," Banxico said, adding this was the main reason for continuing to reinforce its monetary policy stance to ensure inflation converges to its 3.0 percent target.
      Mexico's inflation rate rose to 6.24 percent in October from 6.0 percent in September and the central bank said inflation expectations for the next 12 months and for 2022 rose again while longer-term expectations remain stable at levels that exceed its target.
     Banxico raised its forecast for headline inflation in the fourth quarter of this year to 6.8 percent from September's forecast of 6.2 percent but lowered the forecast for inflation in the fourth quarter of 2022 to 3.3 percent from 3.4 percent.
     By the third quarter of 2023 Mexico's inflation rate is seen easing further to 3.1 percent.
     Uruguay's central bank said its monetary policy committee considers it necessary to consolidate the process of reducing inflation expectations during the current economic recovery and the gradual process of exiting from a expansionary monetary policy phase is expected to continue in upcoming policy decisions.
     Uruguay's inflation rate rose to 7.89 percent in October from 7.41 percent in September.
     CBU reiterated that as long as there are no setbacks in public health, the priority of monetary policy is to drive inflation expectations to the center of its target range of 3.0 to 6.0 percent over the next 2 years.
     Peru's central bank reiterated its statement from October that the monetary policy stance remains expansionary and today's rate hike does not necessary imply a cycle of successive rate hikes.
     Peru's inflation rate rose to 5.83 percent from 5.23 percent in September but BCRP said it expects inflation to return to its target range of 2.0 percent, plus/minus 1 percentage point, in the second half of next year as the impact of transitory factors on inflation, such as the exchange rate, fuel and grain prices, reverse and economic activity remains below its potential level.
     But the bank also said inflation expectations were slightly above the upper limit of the target range at 3.3 percent for 2022 and its board said it was attentive to new information about inflation expectations and economic activity and will consider changes to its monetary policy stance if necessary.



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