Mexico's central bank hikes interest rate again amid inflationary pressure

The central bank of Mexico (Banxico) raised the key interest rate once again on Thursday to counter domestic inflationary pressure and the impact of a flagging global economy.

Most of the bank's five-member Governing Board voted to raise the target overnight interbank rate (the interest banks charge each other on loans) by 50 basis points to 10.50 percent, effective from Friday.

"The Governing Board will closely monitor the inflationary pressure, as well as all the factors that affect the expected trajectory of inflation," the bank said in a statement.

Banxico said it will still need to raise the benchmark interest rate at its next meeting, scheduled for Feb. 9, 2023, as the domestic inflationary pressure persists.

While global economic activities recovered moderately in the third quarter of 2022, the outlook for 2023 continues to deteriorate, the bank noted.

Of the risks, Banxico highlighted the COVID-19 pandemic, the ongoing inflationary pressure, worsening geopolitical tensions, and tighter monetary and financial conditions.

After registering an expected 8.1 percent by the end of 2022, inflation in Mexico is forecast to be 4.1 percent at the end of 2023 and 3.1 percent by the third quarter of 2024, closer to the target rate of 3 percent.

In June 2021, the central bank began a cycle of raising the key interest rate, as a result of price hikes due to the effects of the pandemic.