Mexico’s central bank raised interest rates on Thursday and warned that the election of Donald Trump as US president had cast doubt on the direction of Latin America’s No. 2 economy.
The Banco de Mexico raised its key rate by 50 basis points to 5.25 percent, as expected by the median of 15 analysts polled by Reuters from the end of last week.
But the market later tilted toward bets on a hike of at least 75 basis points and the peso weakened about 1 percent after the decision to 20.42 per dollar.
The central bank said the outcome of the US election could affect the bilateral relationship with Mexico on top of further episodes of global volatility.
“The current environment facing the national economy is characterized by greater uncertainty,” it said.
The central bank insisted the country’s banks were well capitalized, but that the government should still take further steps to improve economic fundamentals.
The peso was driven past 20 pesos per dollar last week in its biggest two-day loss since a 1995 devaluation. The currency shed more than 8 percent last week and its deep slump could fan inflation higher.
The peso had been pressured since mid-August whenever Trump gained ground in opinion polls. The Republican candidate has threatened to unwind a free trade deal with Mexico and block the money sent home by migrants to pay for a border wall.