The Bank of Mexico just hiked interest rates.
Banxico, as the bank is usually called, hiked by 25 basis points to 6.50% in its latest interest-rate decision, as most economists were expecting.
In the accompanying statement, Banxico specifically notes that the decision to raise rates was done with respect to the Fed’s decision to tighten policy earlier in March.
Furthermore, the bank stated that “the balance of risks to growth has improved at the margin.”
"Consistent with this, policymakers are also less worried about the peso. While the statement notes that 'significantly uncertainty remains' about the 'external environment' (read: President Trump's trade policies), it also highlights the fact that pressure on the peso has eased," Neil Shearing, chief emerging markets economist at Capital Economics, wrote in a note.
"Policymakers will continue to 'monitor pass-through to inflation from a weaker currency' but there is clearly much less urgency now compared to a couple of months ago."
Thursday's decision marks the bank's fourth consecutive rate hike since US President Donald Trump's election in November. However, the three previous hikes - at the November, December, and February meetings - were by 50 basis points.
Inflation has started to pick up recently in Mexico: consumer prices rose by 4.86% year-over-year in February, after climbing by 4.72% in January. This marks the eighth consecutive month the rate has accelerated, and it has now climbed to its highest level since March 2010. The pickup in inflation has been attributed primarily to rising energy costs following the government's decision to raise gas prices by about 20% at the start of the year.
Moreover, the latest decision comes amid a recent recovery in the peso. The beleaguered currency has effectively rebounded to the level last seen on election day (as the currency was dropping against the dollar), and is up by about 5% since Trump's inauguration, when it traded around 21.9550.
In a note to clients published ahead of the decision, Capital Economics' Edward Glossop suggested that the bank may choose to hike by just 25 basis points this time around against the backdrop of the peso's comeback.
The Mexican peso is up by 0.4% at 18.6148 per dollar as of 3:05 p.m.
