Published On: Fri, Dec 18th, 2015

Mexico’s interest rate hike may help the peso

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Following the lead of the U.S. Federal Reserve, the Bank of Mexico raised its interest rates for the first time in eight years on Thursday Dec. 17.

Hoping to shore up the peso, Mexico’s central bank raised borrowing costs for the first time in eight years, in spite of record low inflation, after the U.S. Federal Reserve raised rates Wednesday to a range of 0.25 to 0.5%.

The Bank of México raised its interbank rate by 25 basis points, to 3.5% in a move that was not unexpected.

Banxico issued a statement saying the increase was due primarily to yesterday’s action by the Federal Reserve, and was intended to avoid further erosion in the value of the peso and inflationary pressure.

The peso is down more than 15% in relation to the dollar this year, and hit a new low last week, dropping to 17.44 pesos to the dollar.

Graphic: investsa.co.za

Graphic: investsa.co.za

The bank said the balance of risks had improved for the Mexican economy after a higher-than-expected increase in Gross Domestic Product in the third quarter, greater consumer spending, more investment and declining inflation.

On the other hand, industrial output and exports have slowed

Source: http://mexiconewsdaily.com/news/bank-follows-the-fed-raises-interest-rate/#sthash.DyKfAl1b.dpuf

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