Mexican central bank seen hiking rate on high inflation, Fed

By Miguel Gutierrez

MEXICO CITY (Reuters) – Mexico’s central bank is seen hiking its benchmark interest rate by 25 basis points on Thursday, according to a poll published on Monday, on the back of expectations for persistently high inflation and forecasts for the U.S. Federal Reserve to increasing borrowing costs.

The Bank of Mexico (Banxico) is expected to raise the overnight interbank rate by 25 basis points to 8.25 percent, according to 19 of 24 analysts polled by Reuters. That would be its highest level since August 2008.

The other five analysts expected the bank to hold rates steady at 8 percent.

Four of five members of Banxico’s board voted on Nov. 15 to hike the key rate by 25 basis points to 8.0 percent, saying it was “indispensable” in order to counter confusion over future policies sparked by the incoming leftist government.Deputy Banxico Governor Irene Espinosa called for a 50 basis-point increase.

Mexico’s inflation rate cooled less than expected in November, with consumer prices rising 4.72 percent in the year through November , compared with expectations for a rate of 4.63 percent in a Reuters poll and October’s 4.90 percent rate.

“The scenario does not look stable for the first months of the new government considering the barrage of actions and measures taken that have put markets on alert,” said Alfredo Coutiño, director of analysis for Latin America at Moody’s Analytics.

President Andres Manuel Lopez Obrador’s economic credibility took a hit when he decided on Oct. 29 to scrap a partly built $13 billion new Mexico City airport on the basis of a referendum that was widely panned as illegitimate. Rating agency Fitch warned it could downgrade the country’s creditworthiness after the decision.

“The exchange rate will continue to be under pressure at the beginning of the year and with this, inflation expectations will continue to deteriorate,” said Coutiño.

Banxico is also seen hiking its key rate as investors bet heavily that the U.S. central bank will raise rates at the end of its two-day policy meeting on Wednesday as it delivers on a promise to raise rates gradually toward a neutral setting to keep the economy from overheating.

Still, some saw a rate hold.

Nomura said in a note on Monday that policymakers would hold interest rates steady after the first budget presented by Mexico’s new leftist government maintained a commitment to fiscal discipline.

Banxico will publish its monetary policy statement Thursday at 1 p.m. local time (1900 GMT).

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