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BCN-23
MEXICO-ECONOMY-RATE-INFLATION
Mexico hikes interest rate amid uncertainty
MEXICO CITY, June 22, 2018 (BSS/AFP) – Mexico’s central bank raised its
key interest rate Thursday to 7.75 percent, citing a drop in the peso and
uncertainty over upcoming elections and trade negotiations with the United
States.
The hike, by 0.25 percentage points, was largely expected by markets after
the peso crossed the threshold of 20 to the dollar earlier this month.
“Since our last monetary policy decision, the peso has depreciated further
and shown increased volatility,” the Bank of Mexico said in a statement.
It said the factors behind the volatility included a lack of progress in
efforts to renegotiate the North American Free Trade Agreement (NAFTA) with
the United States and Canada, as well as uncertainty around Mexico’s July 1
elections.
Talks on updating NAFTA have stalled over demands by US President Donald
Trump’s administration for more protections for the American auto industry
and a five-year “sunset clause” to the agreement.
Markets are also uneasy over the presidential election, in which opinion
polls give fiery leftist Andres Manuel Lopez Obrador a double-digit lead.
Mexico’s inflation rate is coming under control after spiking last year.
It currently stands at 4.51 percent, and the central bank expects it to
return to the target range of two to four percent next year.
But inflation risks remain, and the peso has now become a headache for the
bank.
“Everything hinges on the currency,” said consulting firm Capital
Economics.
“If the peso comes under pressure from either political concerns following
next month’s election or worries about the direction of NAFTA negotiations,
it’s clear… that policymakers will tighten further.”
BSS/AFP/HR/1040