November 12, 2018 / 5:51 PM / a month ago

Mexico cenbank seen hiking rate after peso slump

MEXICO CITY, Nov 12 (Reuters) - Mexico’s central bank is expected to raise its benchmark interest rate to a nearly 10-year high on Thursday after a sharp drop in the peso and a shift in forecasts for a weaker currency, a Reuters survey showed on Monday.

The Bank of Mexico (Banxico) is expected to raise the overnight interbank rate by 25 basis points to 8.00 percent, according to 22 of 25 specialists, which would be its highest level since August 2008.

Three analysts expected the bank to hold rates steady.

Mexico’s peso has weakened sharply since the central bank’s last meeting in early October.

In October, the peso saw its steepest monthly drop since the surprise election of U.S. President Donald Trump after Mexico’s incoming president said he would scrap a more than $13 billion new airport for Mexico City that is already partly built.

Many banks are now forecasting a weaker peso this year and next, partly due to uncertainty about economic policy under leftist President-elect Andres Manuel Lopez Obrador, who takes office on Dec. 1.

“The weakening currency and the worsening balance of risks for inflation in recent weeks now seem likely to warrant a hike,” analysts at Nomura wrote in a note to clients on Monday.

Mexico’s annual inflation rate rose 4.9 percent in October, still far from the central bank’s target of 3.0 percent, plus or minus one percentage point.

Banxico held its key rate steady in early October, but one board member voted for a hike. The board as a whole cautioned it may need to raise rates again due to the threat of persistently high inflation.

The Bank of Mexico will publish its monetary policy statement next Thursday at 1 p.m. local time (1900 GMT). (Reporting by Miguel Gutierrez and Michael O’Boyle; editing by Julia Love)

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