Mexico’s central bank raised its benchmark rate 50 basis points to 4.75%, hoping to stem risks that a weak peso could fan inflation after a sell-off in the currency sparked by fears Donald Trump could win the White House.
The Banco de Mexico bumped up rates to their highest level since 2009, when the Mexican economy was mired in the global economic crisis. The hike was in line with the median forecast of a Reuters poll of analysts this week.
“With this action, the aim is to stem inflationary pressures and keep inflation expectations anchored,” the bank said in a statement, adding that the latest increase did not herald the start of a monetary policy tightening cycle.
The rate rise followed a unanimous 50-basis-point hike in June to keep the ailing peso from pushing up consumer prices.
Mexico’s peso has hit a series of record lows in recent months, and inflation rose faster than expected in early September with the annual core reading just above the central bank’s 3% target for the first time since late 2014.
“If Trump wins, the peso is going to keep depreciating, and they will have to raise rates higher still, and then what’s the limit?” said Barclays’ Mexico economist Marco Oviedo. “Another 100 basis points, or another 150?”
The beleaguered currency, which has lost over 3% so far this month, weakened to just under 20 pesos per dollar in the lead-up to the US presidential debate on Monday.
However, the currency surged after the face-off, in which Democratic candidate Hillary Clinton was perceived to have performed better than Trump, leading investors to trim bets on steeper rate hikes in coming months.
