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Mexican central bank likely to hike interest rate

The Mexican central bank is set to meet later today for its interest rate decision. According to a Commerzbank research report, the central bank is likely to hike its key interest rate to 8 percent from 7.75 percent. Anything else might be a big surprise and should increase the stress on the Mexican peso. The peso has been under huge pressure for some weeks, after the newly elected President Andres Manuel Lopez Obrador cancelled the construction of a new airport and thus greatly unsettled investors.

The central bank is not expected to be interested to further boost the peso weakness by keeping rates unchanged today. Inflation has stayed close to 5 percent for a few months, above the central bank’s target of 3 percent.

Even core inflation, although considerably lower at 3.73 percent, has also risen a bit in recent months. The central bank, in its statements, had always indicated that developments in the exchange rate could have a positive or negative effect on inflation.

“In summary, the market is nervous and the peso tends to be under devaluation pressure. In this environment, the central bank is likely to raise interest rates and continue to strike a hawkish tone”, added Commerzbank.

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