MEXICO CITY, June 25 (Reuters) - Mexico is facing an “unprecedented situation” in terms of the shocks affecting inflation due to the COVID-19 pandemic and future interest rate moves will depend on the evolution of inflation, said Bank of Mexico Governor Alejandro Diaz de Leon.
“Despite having a negative product gap, we are seeing multiple upward revisions in prices, shortages in different inputs and that’s because of COVID, not because of the economy’s traditional cyclical behavior,” said Diaz de Leon.
“We’re in an unprecedented situation in terms of the shocks that are affecting inflation.”Diaz de Leon, whose term as governor concludes at the end of 2021, said the rate hike would contribute to bringing inflation towards the bank’s 3% target, plus or minus one percentage point.
With Mexican consumer prices rising 6.02% in the year through the first half of June, Banxico now expects headline inflation to converge to its target during the third quarter of 2022.
Banxico’s board deliberately avoided giving guidance on future monetary policy actions because future rate moves will depend on the evolution of inflation, and Thursday’s rate decision was fundamentally aimed at avoiding contaminating inflation expectations and the price formation process, Diaz de Leon said.
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