Mexico’s central bank hiked borrowing costs by 25 basis points on Thursday and said it was willing to act again whenever needed due to intensifying risks to inflation. With new governor Alejandro Diaz de Leon at the helm for the first time since the departure of Agustin Carstens last month , the Banco de Mexico board raised the benchmark borrowing rate to 7.25 percent, as was expected by a majority of analysts in Reuters poll.
The hawkish move to counter a recent uptick in inflation and match a rate hike by the U.S. Federal Reserve momentarily prompted the peso to reverse earlier losses. Board members warned that concerns the United States could pull out of a trade deal with Mexico, as well as jitters ahead of the 2018 presidential election in Latin America’s No.2 economy, could batter the peso.
“Due to the intensification of the risks that could affect inflation, the board will be vigilant and, if necessary, will take the corresponding actions, as soon as it is required” to achieve convergence toward the bank’s 3 percent target, the bank said in its post-meeting statement.
The board warned the annual rate could take longer to reach the target next year, but said the annual figure should still be close to 3 percent by the end of 2018. Mexican annual inflation accelerated to 6.63 percent in November, the steepest rate since August when it hit the highest level in 16 years. Many analysts had expected Diaz de Leon to burnish his inflation-fighting credentials since his previous position at the finance ministry led some to believe he would favor lower rates to foster growth and keep government financing costs down.