LatAm: Mexico raises interest rate

Mexico’s Central Bank (Banxico) raised interest rates to 6.5% in late March, up from 6.25%, pushing rates to the highest level seen since 2009. It is the fourth time Mexico has increased its interest rate benchmark since the US presidential election last November.

Inflation was the key driver of the move, with the consumer price index (CPI) measure from the first two weeks of March above the 3% annual growth target at 5.3%, driven by an increase in fuel prices.

Inflation was the key driver of the move, with the consumer price index (CPI) measure from the first two weeks of March above the 3% annual growth target at 5.3%, driven by an increase in fuel prices. The other key factor was concern about the peso, with Banxico still concerned about what the potential impact changes to US trade policy could have on the currency. This is despite the fact the peso has bounced back 17% since November 2016, where it initially plunged in response to the election of President Trump. Banxico also aims to keep interest rates in Mexico in line with the US, so the move was partially in response to the 0.25 basis point increase seen by the US Federal Reserve earlier in the month.

Bank of America’s chief Mexico economist Carlos Capistran said they expect the cycle of rising interest rates to be nearing its end due to a to decelerating Mexican economy and the view that the high inflation is temporary.

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