The central bank of Mexico last night raised interest rates by 50bps to 3.75%. Mexico’s last rate rise was in December 2015 when it raised the official rate by 25bps following the US Fed’s rate raise. The move surprised markets and saw the peso rally sharply. The Mexican currency had recently tested lows against the USD but the bank is concerned about inflation rising and was keen to nip any moves in the bud.
The Mexican economy relies heavily on the state-owned oil company Pemex whose taxes fund about 20% of the Mexican Government budget. Oil revenues had plummeted recently causing a collapse in the peso and subsequently a potential rise in inflation.