Mexico central bank signals another rate hike possible

By Nancy Caouette

MEXICO CITY (AA) – The governor of the Bank of Mexico said Friday he will not rule out another interest rate hike before the end of the year.

“I don’t exclude this option. The next meeting of the bank’s board members in December will be really important,” Agustin Carstens said during a local radio interview.

A day earlier, the central bank, Banxico, raised its benchmark rate by 50 basis points in an attempt to counteract inflationary pressures, largely caused by the depreciation of the peso after the victory of Donald Trump in the U.S. presidential elections.

The key rate has reached 5.25 percent, a level not seen since May 2009, shortly after the onset of the global financial crisis.

When asked about why the bank did not implement a greater hike Thursday, Carstens said the half-point increase as “significant”.

“We're trying to reach a balance between not lagging behind reality and, on the other hand, not anticipating news, speculation, that could not be true [about Trump’s policies] and that could put additional unnecessary costs on the Mexican economy,” he said.

“We must apply the medicine but not cause an overdose,” he added. The rate hike Thursday was the fourth since the beginning of the year.

Carstens said the U.S. Federal Reserve’s decision on a rake hike next moth would be a determining factor that will guide Banxico’s next rate policies.

The peso plunged to a record low of 21.395 per dollar in the hours following Trump’s win Nov. 8.