The challenge of inflation: high interest rates in Mexico

The Bank of Mexico continues to strive to achieve inflation in the country to converge towards its target range, which is set at 3% plus/minus one percentage point. Despite signs of inflation deceleration earlier this year, recent readings have shown an acceleration, causing concern for the Central Bank. The coronavirus pandemic in 2020 and other geopolitical events led to inflation in Mexico reaching levels not seen in two decades, prompting the Bank of Mexico to begin a process of raising interest rates in an attempt to control it. Since the 25 basis point cut in March, the interest rate has remained at a high 11%. According to experts such as Arely Medina, economist at Citibanamex, and Alejandro H. Garza Salazar, director of Azotan Equity Management, the interest rate is a fundamental tool for controlling inflation, as it directly affects the cost of money and, therefore, the purchasing power of the population. The persistence of high interest rates affects the population in general, especially those with lower incomes, as high inflation reduces their purchasing power. Although access to formal credit in Mexico is not as widespread as in other countries, the population will be affected both through the loans they can acquire and through the transfer of higher costs by companies. The impact of maintaining high interest rates for an extended period can result in lower consumption, economic slowdown, unemployment, and even an increase in the cost of loans, ultimately leading to an economic contraction. However, despite these warning signs, the Mexican economy remains strong, with low levels of unemployment and an increase in exports. For those considering taking out a loan, it is crucial to carefully evaluate their financial capabilities, opting for mortgage loans that currently have rates below the benchmark rate. It is also recommended to consider taking out variable rate loans prior to rate cuts, as well as saving and investing in financial instruments that can offer attractive returns. In summary, the persistence of high interest rates in Mexico poses a challenge for the economy and the population in general. Caution and financial planning become essential in a scenario where the cost of money remains high, and where monetary policy decisions directly impact the daily lives of citizens.