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Mexico hikes interest rate to near 8-year high

Staff Writer | February 13, 2017
Mexico’s central bank raised its benchmark interest rate to a nearly 8-year high in a bid to curb rising inflation.
Mexico’s central bank
Economy in Mexico   The peso tumbled past 22 per dollar to an all-time low
The Banco de Mexico hiked interest rates by 50 basis points to 6.25 per cent, the highest level since March 2009 and in line with expectations in a Reuters poll.

The central bank said it raised rates to avoid consumer price contagion following a jump in gasoline prices and to anchor inflation expectations.

Mexico’s annual inflation accelerated faster than expected to 4.72 per cent in January, data showed earlier on Thursday, its highest rate in more than four years, after the government raised regular gasoline prices by 14 per cent.

The central bank said in a statement the outlook for both growth and inflation had worsened, although the impact from the gasoline price hike was expected to be temporary.

Policymakers said inflation would continue to run above 4 per cent upper limit before beginning to ease late in the year and move back toward 3 per cent in 2018. The peso extended gains after the decision.

The central bank raised rates five times last year, lifting borrowing costs by a cumulative 250 basis points as the peso slid to successive record lows.

The peso tumbled past 22 per dollar to an all-time low just ahead of US President Donald Trump’s inauguration on concerns he would rip up a free trade agreement with Mexico.