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Mexico central bank seen hiking rate to counter inflation, match Fed

Mexico central bank seen hiking rate to counter inflation, match FedMexico central bank seen hiking rate to counter inflation, match Fed

MEXICO CITY (Reuters) – Analysts by a narrow margin expect Mexico’s central bank to raise its benchmark interest rate on Thursday to counter a recent uptick in inflation and match a rate hike by the U.S. Federal Reserve.

Banco de Mexico is expected to hike its key rate by 25 basis points to 7.25 percent, the highest in nearly nine years, according to 17 of the 31 economists polled by Reuters this week.

The remaining 14 analysts saw the bank holding the rate steady at its current 7.0 percent for the fourth straight monetary policy meeting.

Mexican annual inflation accelerated to 6.63 percent in November, the steepest rate since August when it hit the highest level in 16 years.

Thursday’s announcement will mark the first policy meeting presided over by new Governor Alejandro Diaz de Leon following the departure of Agustin Carstens to the Bank for International Settlements at the end of November.

Many analysts expect Diaz de Leon will want to burnish his inflation-fighting credentials since his previous position at the finance ministry leaves him exposed to criticism that he may favor lower rates to foster growth and keep government financing costs down.

On the day of his nomination late last month, Diaz de Leon said the inflation outlook had deteriorated and warned that a drop in the rate toward the central bank’s 3 percent target next year may not pan out as forecast due to possible shocks in the future.

Further backing expectations for a hike, the Fed on Wednesday raised its key rate.

Higher U.S. interest rates can sap demand for emerging market assets, and Mexican policymakers will likely want to push up yields on Mexican debt in order to underpin the peso, which has been hit by concerns that U.S. President Donald Trump could pull out of the North American Free Trade Agreement (NAFTA).

The central bank will publish the rate decision at 1 p.m. (1900 GMT) on Thursday.

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Source: Investing.com

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