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Mexico’s interest rates hike breaks records, boosts peso

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The Bank of Mexico headquarters. Photo: Wikipedia

Mexico’s central bank accelerated the pace of its interest rate hikes Thursday.

The peso strengthened slightly after the decision, gaining as much as 0.4% to 19.9791 per US dollar.

Banxico’s board voted unanimously to raise its key rate by 75 basis points to 7.75%. The increase is the largest since the bank adopted an inflation targeting system in 2008.

Annual inflation is running at a 21-year high, helping explain the central bank’s action.

“For the next policy decisions, the Board intends to continue raising the reference rate and will evaluate taking the same forceful measures if conditions so require,” the five-member board wrote in a statement accompanying the decision. 

Mexico’s statistics institute said inflation hit 7.88% in the first two weeks of the month from a year earlier, above all forecasts and more than double the central bank’s target of 3% — plus or minus 1 percentage point.

Inflation “keeps surprising us in a negative way — every time the consumer price index is released, it’s higher than the expectation,” Joan Domene, senior economist for Latin America at Oxford Economics, told Bloomberg before the decision. “That means there are big problems.”

The unanimous vote was a “good” sign, since it “shows that all the board supports fighting inflation forcefully,” said Carlos Capistran, chief Mexico and Canada economist at Bank of America Corp.

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