The Bank of Mexico just hiked interest rates by 50 basis points.
Banxico, as the central bank is usually called, hiked rates to 5.25%, up from 4.75%, as economists were expecting.
This is the bank’s highest rate since 2009.
“In the weeks after the last monetary-policy decision, the panorama for the global economy became more complex, among other factors, as a consequence of the electoral process carried out in the United States and its result,” Banxico wrote in the accompanying statement.
“Although the global economy had given indications of a moderate recovery in the third quarter of the year, the possible implementation in the United States and other countries of some measures to hinder external commerce and foreign exchange, makes the balance of risks to the growth of the global economy [deteriorated].”
Thursday’s monetary-policy announcement comes after a tumultuous few weeks for the Mexican peso, which has been one of the big market casualties of the US presidential election. The currency fell to a record low against the dollar on election night as rolling results increasingly pointed to a victory by Donald Trump. It continued tumbling last week but has since retraced some of its losses.
The peso became something of a gauge of Trump’s prospects during the last few months leading up to the election. When traders thought Trump’s prospects of winning went up, the peso often went down against the US dollar — and vice versa.
Analysts and economists had attributed the currency’s volatile moves to the fact that Trump’s strong protectionist platform would most likely have negative repercussions for the Mexican economy if implemented. And looking forward, they expect the bank to respond accordingly.
“Although it still is difficult to identify the specific elements that will define the political-economy posture that the United States will have in its bilateral relations with [Mexico] at the beginning of 2017, the risk that it implies have had an important impact in the national financial markets,” Banxico added in its statement.
The Mexican peso tumbled by over 1.0% to 20.4433 per dollar immediately after the bank announced its decision. It has since retraced some of its losses and was down by about 0.6% at 20.3536 as of 2:07 p.m. ET.
Christopher Woody contributed to the report.
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