2017.06.2308:34:00UTC+00MEXICO: Central Bank Increases Key Interest Rate To 7%

Mexico's central bank (Banxico) decided to increase its benchmark interest rate by 25 basis points (bp), to 7% per year, to hold inflation expectations near the 3% target and slow down the prices rise in the country.

Consumer prices in Mexico were up 6.16% in May, the fastest annual increase since April 2009. The price rise was due to a higher increase in energy prices and government controlled rates, but food, beverages, and other commodity prices also boosted inflation last month.

The annual inflation excluding food and energy prices - known as core inflation - rose to 4,78% in May, from 4,72% a month before.

Inflation in Mexico has consistently increased in spite of the central bank efforts to weaken the price rise. The country's benchmark interest rate has been growing since September. Mexican peso faced depreciation compared to the US dollar since 2014, with a more severe decline late last year, due to uncertainties regarding terms of trade between Mexico and the United States after Donald Trump's election. That and an increase in fuel prices boosted inflationary pressures in domestic markets.

Banxico's Board stressed that it would closely watch the evolution of all the determinants of inflation and its medium and long-term expectations, "in particular the potential transfer of exchange rate variations and increases in energy prices to the rest of prices."

Also, Banxico intends to evaluate the relative monetary position between Mexico and the United States. "Regarding interest rate differentials between Mexico and the United States, there are continued significant increases in short-term horizons and slight reductions in medium and long-term interest rates," the bank said.

Only one member of the monetary policy committee voted to keep the benchmark interest rate at 6.75% per year.