Banxico Lifts Key Rate as Prices Surge, Peso Slides Juan Montes - The Wall Street Journal
go to original February 10, 2017

Bank of Mexico Gov. Agustín Carstens spoke in Wiesbaden, Germany, last month (Bloomberg News)

The Bank of Mexico on Thursday lifted interest rates by half a percentage point, the fourth straight time the central bank has raised borrowing costs to tame a quickly rising inflation rate.

The overnight interest-rate target now stands at 6.25%, the highest level since early 2009, indicating the bank is determined to continue raising rates to keep inflation pressures under control despite a sluggish economy.

The decision immediately caused the peso to appreciate to around 20.33 against the U.S. dollar, continuing the recent recovery of the Mexican currency. Since hitting a record low in mid-January, the peso has gained around 7% against the dollar.

A big increase in gasoline prices in January left little room for the bank to hold back. Annual inflation jumped to 4.72% last month, the highest level in more than four years, the national statistics agency said Thursday. January’s 1.7% inflation was the most for a single month since 1999.

“The main challenge for the central bank’s board is to avoid knock-on price effects and keep inflation expectations anchored in the mid- and long-term,” the bank said in its policy statement. The bank sees inflation above its 4% target ceiling during the year.

...The economy is expected to expand about 1.5% in 2017, below the 2.3% growth last year.

Read the rest at The Wall Street Journal

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