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Mexico peso firms after aggressive rate hike

Mexico's peso strengthened on Thursday after the country's central bank hiked its benchmark interest rate.

EL UNIVERSAL/file photo
English 15/12/2016 20:50 Actualizada 20:50
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Mexico's peso strengthened on Thursday after the country's central bank hiked its benchmark interest rate more than expected in a bid to ease pressure on the currency and slow inflation following the U.S. election victory of Donald Trump.

The Banco de Mexico hiked its benchmark interest rate by 50 basis points to 5.75 percent, above the median forecast in a Reuters poll of economists, taking it to its highest level since April 2009.

The peso reversed losses on the announcement, before closing at 20.33 pesos per dollar, up about 0.7 percent.

The central bank has raised rates five times this year, lifting borrowing costs by a total of 250 basis points.

Policymakers on Thursday said the cumulative hikes would help slow the quickening inflation trend by 2018.

The move came a day after the Federal Reserve indicated it would raise U.S. interest rates more times than expected next year, potentially draining capital away from higher-risk emerging markets.

In a conference call after the decision, Fed Chair Janet Yellen said the election of Donald Trump as president had put the U.S. central bank under a "cloud of uncertainty," and already prompted some policymakers to shift their view of what is to come.

Trump has pledged to cut taxes but also to invest heavily in American infrastructure, fostering expectations of stronger price pressures and weakening emerging market currencies.

The outlook for increased economic activity and stronger demand for industrial metals has also triggered a rally in U.S. stocks and commodity prices.
 

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