December 15, 2016 / 12:01 PM / 2 years ago

Mexico central bank seen raising rates after Fed hike

MEXICO CITY, Dec 15 (Reuters) - Mexico’s central bank looks set to follow the U.S. Federal Reserve and raise its benchmark interest rate on Thursday, seeking to cool quickening inflation after President-elect Donald Trump’s election took the peso to record lows.

The Banco de Mexico is expected to raise its benchmark rate by 25 basis points to 5.50 percent at its final meeting of the year, according to the median expectation of 26 analysts polled by Reuters. A minority of analysts predicted a 50 basis point hike.

Mexico’s central bank will publish its monetary policy decision at 1300 (1900 GMT) on Thursday.

Nomura’s Benito Berber said it will be a close call between a hike of 50 basis points or 25, noting that there were strong arguments for a rise of a quarter-percentage point.

“Banxico will have to hike further in 2017 as the Fed hikes; therefore, it should save its ammunition now,” Berber said, adding that he still narrowly believed the bank will hike by 50 basis points.

The Fed raised interest rates by a quarter point on Wednesday and signaled a faster pace of increases in 2017 as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation.

The rate increase, regarded as a virtual certainty by financial markets in the wake of a string of generally strong economic reports, raised the target federal funds rate 25 basis points to between 0.50 percent and 0.75 percent.

Mexico’s central bank has found itself in the unwelcome position of having to raise rates four times so far this year due to a serially weakening peso that is now affecting prices.

Last week, data showed Mexico’s annual inflation reached its highest in two years in November, adding further fuel to economists’ expectations that the central bank will hike.

In November, the central bank raised rates to 5.25 percent, their highest level since May 2009, and warned that the election of Trump as U.S. president had cast doubt on the direction of Latin America’s second-largest economy.

The peso slid to a record low in the wake of Trump’s victory, posting its biggest two-day loss since a 1995 devaluation.

The Republican candidate had threatened during the election campaign to unwind a free trade deal with Mexico and block the money sent home by Mexican immigrants to pressure the country to pay for a border wall. (Reporting by Gabriel Stargardter; Editing by Alistair Bell)

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