Published On: Mon, Dec 18th, 2017

Mexico’s Central Bank Raises Rates as Inflation Concerns Mount (WSJ)

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MEXICO CITY—The Bank of Mexico raised interest rates by a quarter percentage point Thursday after a six-month pause, as policy makers have grown increasingly worried about high inflation.

The overnight interest rate target now stands at 7.25%—the highest since February 2009.

The policy meeting marked Alejandro Díaz de León’s first as the central bank’s governor. He took over two weeks ago facing a tough situation, with high inflation, slowing economic growth, and a weak and volatile peso.

Some analysts said Mr. Díaz de León may have sought to burnish the bank’s orthodox credentials at his first meeting as governor.

Alejandro Diaz de Leon

Alejandro Diaz de Leon

“The main challenge for the bank’s board…is to reinforce the downward path for inflation to the target,” the policy statement said. A majority of the bank’s four voting members agreed to the move, while one member called for a half-percentage point increase, underscoring the concern inflation is causing for the board.

The peso—the second most traded emerging-market currency with daily average turnover of some $112 billion—appreciated 0.3% just after the policy announcement, briefly hitting 18.97 to the U.S. dollar before moving back above 19.

The rate decision was increasingly expected by markets and analysts in recent weeks as annual inflation came in above expectations in November at 6.6%, more than double the bank’s 3% target.

The Bank of Mexico had been expecting inflation to start slowing at the end of the year, but now sees it ending December above the November level.

 

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Source: WSJ



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