Mexico’s central bank raised borrowing costs for the fourth time this year after Donald Trump’s election dragged the peso to never-before-seen levels of more than 20 per dollar, boosting the risk of faster inflation.
Policy makers increased the key rate a half point to 5.25 percent Thursday, the highest level since 2009. Most of the 23 economists surveyed by Bloomberg beforehand expected a half-point increase, with the rest split between a hike of three quarters of a point and a full-point. The peso fell 0.9 percent to 20.3859 per dollar at 3:18 p.m. in New York, signalling that the market may have expected a bigger increase or more measures.
Before the election, central bank Governor Agustin Carstens said he and the Finance Ministry had a contingency plan for panicked markets. So when Trump’s victory sent the peso plunging as much as 12 percent and Mexico’s government took no action, attention shifted to today’s meeting. The statement following the meeting focused on the risks of pass-through from peso depreciation to consumer prices and said that the rate hike seeks to counter price pressures and keep inflation expectations anchored.
Today’s decision is meant to "avoid having the depreciation un-anchor inflation expectations," Carlos Capistran, the chief Mexico economist at Bank of America Corp., said in an e-mailed response to questions. "We expect the next movement to be a quarter-point hike in December with the Fed."