Mexico's central bank on Thursday raised its key interest rate by half a point to contain inflation and shore up the peso after its battering following Britain's decision to leave the European Union. Facing the prospect of "sluggish" global growth in the second half of 2016, the bank decided to "increase the interbank base rate by 50 points to a level of 4.25 percent," it said in a statement.
"One of the risks for the global economy has materialised after Great Britain's recent decision to end its membership in the European Union," it added. The peso fell 3.12 percent on Friday, closing at 19.25 pesos to the dollar the day after Britons voted in a referendum to leave the EU. The Mexican currency rallied on Thursday on news of the hike, which was larger than expected.
Brexit had a "negative impact on international financial markets and the prospects of trade and global growth, with corresponding effects on the confidence of businesses and consumers," the central bank said. By increasing the policy rate, it "seeks to prevent the depreciation of the national currency seen in recent months." The bank had already raised its key rate by half a point to 3.75 percent in February to stem the peso's decline.
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