November 15, 2018 / 6:05 AM / a month ago

Mexico's central bank seen hiking key rate to 10-year high

MEXICO CITY, Nov 15 (Reuters) - Mexico’s central bank is seen hiking its benchmark interest rate to a nearly 10-year high of 8.0 percent on Thursday as the peso currency has taken a beating in recent weeks and analysts shift their forecasts for a weaker currency.

The Bank of Mexico is expected to raise the overnight interbank rate by 25 basis points, according to 22 of 25 specialists polled by Reuters earlier this week, which would be its highest level since August 2008.

Mexico’s peso has weakened sharply since the central bank’s last meeting in early October, falling nearly 6.7 percent in that time.

The bulk of the peso’s drop came after Mexico’s incoming president, Andres Manuel Lopez Obrador, decided on Oct. 29 to scrap a more than $13 billion, partially built new airport for Mexico City.

“Since the last meeting, some of the upside risk to inflation have materialized, including a weaker Mexican peso and heightened concern with policy direction and a potential deterioration of the fiscal baseline,” Goldman Sachs said in a note to clients.

Many banks are now forecasting a weaker peso this year and next, partly because of uncertainty about economic policy under leftist Lopez Obrador, who takes office on Dec. 1.

Goldman Sachs is forecasting a 25-basis-point increase and said the Bank of Mexico would likely “preserve a hawkish and vigilant stance.”

The Bank of Mexico held its key rate steady on Oct. 4, although one board member voted for a hike and the entire board cautioned it may need to raise rates in the future due to the threat of persistently high inflation.

Mexico’s annual inflation rate rose by 4.9 percent in October, still far above the central bank’s target of 3.0 percent, plus or minus 1 percentage point.

The Bank of Mexico will publish its monetary policy statement on Thursday at 1 p.m. (1900 GMT). (Reporting by Anthony Esposito; Additional reporting by Sheky Espejo; Editing by Peter Cooney)

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