Mexico City (Mexico), August 15: The Central Bank of Mexico (Banxico) on Thursday decided to raise the key interest rate by 25 basis points to 4.50 percent, and adjusted its inflation forecast upwards.
The decision on the overnight interbank interest rate represents a second consecutive increase, as Banxico now expects inflation to end the year at 5.7 percent, up from the previous 4.8-percent forecast, the bank said in a statement.
"Although the shocks that have affected inflation are expected to be transitory ... they may imply a risk to pricing," said the authority on monetary policy.
Banxico has an inflation target of 3 percent that it seeks to meet monthly, however, according to the most recent official data, the indicator accelerated to 5.81 percent year-on-year as of July.
The price index, said Banxico, could coincide with the official inflation target towards the first quarter of 2023.
Regarding the economy's trajectory, Banxico said the COVID-19 pandemic has complicated its assessment, but it expects the economy will continue to recover for the remainder of the year.
"Among the global risks, those associated with the pandemic and inflationary pressures stand out, as well as monetary and financial conditions," Banxico said.
The Banxico's governing board voted for the increase in the cost of borrowing in a split decision, with two of its five members voting to keep the rate at 4.25 percent.
The Mexican economy, the second largest in Latin America after Brazil, plummeted 8.3 percent in 2020, its worst performance since the 1930s, due to the effects of COVID-19.
The Mexican Ministry of Finance has forecast an economic growth of up to 6 percent in 2021, depending on the recovery of productive activities and progress in the vaccination drive against COVID-19.
Source: Xinhua