Mexico raises key rate more than expected after Brexit vote

The peso had been treading water at about 18.48 to the dollar before Thursday’s bold hike prompted a sharp bounce to around 18.19.
The peso had been treading water at about 18.48 to the dollar before Thursday’s bold hike prompted a sharp bounce to around 18.19.

By Nacha Cattan and Eric Martin / Bloomberg

Mexico raised its key interest rate after the peso plunged on the U.K.’s vote to leave the European Union, outweighing concerns revealed in the same central bank decision of a weaker domestic economy. The currency rallied.

Banco de Mexico increased the overnight rate a half-point to 4.25 percent Thursday, saying that while the nation’s growth outlook has deteriorated, worsened global economic conditions could impact prices.

It’s the second time this year that policy makers led by Governor Agustin Carstens have veered from the Federal Reserve’s path of keeping rates on hold, after a surprise rate hike in February, even after they said several times they preferred to match U.S. policy moves. The decision to raise rates more than expected Thursday highlights how far global decisions have overshadowed domestic factors, according to Credit Suisse Group.

“Today’s move was very bold,” said Alonso Cervera, chief Latin America economist at Credit Suisse. “The central bank is acknowledging that the external environment is more complex, that it may drive the peso weaker and we have to respond to it. Growth considerations are very secondary.”

http://www.bloomberg.com/news/articles/2016-06-30/mexico-raises-key-rate-to-4-25-after-brexit-pummels-currency

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