MEXICO CITY Feb 9 Mexico's central bank is
expected to raise interest rates on Thursday after a jump in
inflation due to a double-digit gasoline price hike and a weak
The Banco de Mexico is likely to raise its benchmark
interest rate on Thursday to 6.25 percent from the
5.75 percent rate it set in December's meeting, according to 14
of 18 analysts polled last week by Reuters.
"Inflation expectations are clearly rising," Nomura analyst
Benito Berber wrote in a note on Wednesday, noting the central
bank had consistently delivered 50 basis point hikes "when it
Mexico's annual inflation rate is expected to have shot up
in January to 4.70 percent, which would be its fastest pace in
over four years, driven by a 14 percent increase in regular
gasoline prices at the start of the month.
In a central bank poll last week, analysts raised their
expectations for inflation this year to 5.24 percent, up more
than a percentage point above a poll in December, while the
outlook for 2018 rose 20 basis points to 3.80 percent.
Last month, central bank chief Agustin Carstens said the
impact on inflation from the gasoline price hike will be
transitory and he said that policymakers could hurt the economy
if they overreact.
The central bank raised rates five times last year, lifting
borrowing costs by a cumulative 250 basis points as the peso
slid to successive record lows.
The peso tumbled past 22 per dollar to an all-time low just
ahead of U.S. President Donald Trump's inauguration on concerns
he would rip up a free trade agreement with Mexico.
But the peso has rallied back about 7 percent since Trump
took power after he did not immediately move to slap tariffs on
The market has diverged from analysts' views as the peso
rebounded. Yields on interest rate swaps are now pointing to a
25 basis point increase.
Some analysts thought the peso's recent gains as well as the
decision by the U.S. Federal Reserve to hold interest rates
steady next week could leave room for Mexico to also leave
borrowing costs unchanged.
"The recent appreciation of the Mexican peso and the [Fed's]
decision to maintain the Fed funds rate unchanged in February
may be reason enough for Banxico to remain on hold at the next
meeting," said HSBC economist Alexis Milo.
(Reporting by Michael O'Boyle; editing by Diane Craft)