Mexico’s central bank raises rates to fight inflation

By Nancy Caouette

MEXICO CITY (AA) – The Bank of Mexico, or Banxico, on Thursday raised its interest rate for the fifth straight time.

The board of the central bank decided to raise rates by 25 basis points to 6.50 percent as expected by a majority of analysts, the bank said in a statement.

Banxico’s decision helped the battered Mexican peso that closed Thursday at 18.67 against dollar -- its best performance in nearly five months.

According to Banxico, the move was made "to avoid contagion in price formation" and "to contain inflation expectations".

The Bank of Mexico noted that inflation has continued to increase since the beginning of the year, reaching 5.29 percent in the first half of March.

According to Banxico, inflation is mainly due to the depreciation of the peso and the indirect effects caused by the rise in fuel prices in January in Mexico.

During its four previous meetings, the board hiked rates by 50 basis point.

Since December 2015, Banxico has raised the benchmark by 350 basis points.

With the latest hike, the central bank rate has reached an eight-year record high, increasing the spread with the U.S. Federal Reserve to levels not seen since 2009.

The Fed raised its benchmark rate .25 percent in March to between 0.75 and 1 percent.