Mexico raises key interest rate after Fed move

Mexico's central bank raised its key interest rate Thursday for the first time in seven years to protect the peso after the US Federal Reserve hiked its own benchmark rates.
Banco de Mexico increased the interbanking rate by a quarter-point to 3.25 percent, one day after the Fed hiked its key federal funds rate for the first time since 2006.

The bank said in a statement that its first rate hike since August 2008 was "mainly in response" to the Fed's decision to increase the US rate from near zero to 0.25-0.50 percent.

Failing to increase Mexico's rate "could generate an additional depreciation" of the peso against the dollar and affect inflation, the statement said.

"This is good news," Finance Minister Luis Videgaray told a news conference. "It sends a signal that the bank is attentive and acting to protect and preserve the country's financial stability."

While financial volatility remains a challenge, the moves by the US and Mexican central banks are "good for our economy," Videgaray said.
Mexico's economy is closely linked to what happens in its bigger neighbor to the north.

The peso has fallen by 20 percent against the dollar in the past year, mostly due to the drop in global oil prices and the strengthening of the US economy.

The Mexican currency closed at 17.35 pesos against the dollar on Thursday, gaining 0.29 percent from the previous day, when it finished at 17.40 pesos.

While the Mexican economy grew more than expected in the third quarter and consumer spending expanded, exports are stagnant and crude prices are still dropping, the central bank said.

Latin America's second biggest economy grew 2.6 percent in the third quarter compared to the same period last year. The government has lowered its 2015 growth forecast from 2.2-3.2 percent to between 2.0-2.8 percent, partly due to falling oil prices.