MEXICO CITY (Reuters) - Mexico's central bank is likely to raise interest rates on Thursday, in what the market is betting could be its last hike this year, to contain a spike in inflation and following the U.S. Federal Reserve's move to increase borrowing costs.
The Banco de Mexico is seen raising its benchmark rate by a quarter percentage point to 7.00 percent, according to all 17 analysts surveyed by Reuters.
Analysts say that move, which would match the Fed's quarter-point rate hike last week, would help maintain the appeal of peso-denominated debt to yield-hungry investors.
The central bank has raised its main interest rate in its previous six meetings to the highest level since early 2009 as inflation rose to a more than eight-year high.
However, a rally in the peso has pushed the market to bet Thursday's action could be the end of the cycle of rate hikes.
"The market thinks that the inflation peak is near and that Banxico will end its cycle this Thursday," Finamex analyst Guillermo Aboumrad said in a note to clients.
While yields on interest rate swaps MXNIRSBOMWATCH2 are tilting to bets that the central bank will not hike again after Thursday, the poll showed analysts expected one more increase this year, to 7.25 percent.
Mexico's annual inflation quickened to 6.16 percent in May, well above the central bank's target of 3 percent, plus or minus one percentage point.
Consumer prices have risen because of weakness in the peso, which has pushed up the cost of imported goods, and a big increase in gasoline prices by the government in January as the country moves from regulated prices to a free market for fuel.
But the peso has rallied from a record low in January as U.S. President Donald Trump backed away from threats to impose big tariffs on imports from Mexico and toward a renegotiation of the North American Free Trade Agreement.
The central bank will issue its decision at 1 p.m. local time (1800 GMT) on Thursday.
Reporting by Michael O'Boyle; Editing by Lisa Von Ahn