With the peso continuing to bleed amid the fallout from the U.S. presidential election result, the Banco de Mexico, Mexico’s Central Bank, Thursday raised its base interest rate by half a point to 5.25 percent – the fourth rate hike this year.
Some analysts were anticipating an even bigger hike – perhaps by as much as one percent – to counter the inflationary pressure caused by the increasing cost of imports provoked by a weak peso.
Despite the Central Bank’s move, the peso still lost ground against the dollar, ending the trading day at around 20.40.
Interest rates in Mexico are currently at their highest for seven years. They have risen 2.25 percent since December 2015.
Mexican Treasury bill (Cetes) yields also reached their highest level since 2007.
The real possibility that president-elect Donald Trump may withdraw the United States from the North American Free Trade Agreement (NAFTA) has sent shock waves through the Mexican economy. While the federal government claims its growth rate forecast of 2.5 to three percent for 2017 is still on track, investment banks and debt ratings firms have lowered their estimates considerably. Foreign investment is almost certain to fall without assurances from the incoming administration on the direction of bilateral trade policy.