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LatinNews Daily - 22 June 2018

In brief: Mexico

* The governing board of Mexico’s central bank (Banxico) has increased its benchmark interest rate by 25 basis points to 7.75%, the highest rate in nine years. Banxico cited several reasons for the interest rate increase, primarily that increased global risk aversion has impacted the Mexican peso due to increased uncertainty surrounding the outcome of Mexico’s 1 July general election, and a lack of progress in the renegotiation of the terms of the North American Free Trade Agreement (Nafta) with the US and Canada. Secondly, although annual headline inflation has fallen from 4.55% in April to 4.51% in May, Banxico warns that there remains a risk of increased inflation and that it may now take longer for this to come down to its target of 3%. According to the bank, this is in part due to the depreciation of the Mexican peso against the US dollar and to higher external interest rates. Finally, Banxico stated that the rise in the benchmark interest rate was also a response to the 13 June decision by the US Federal Reserve to increase its benchmark interest rate by 25 basis points to 1.75%-2%.

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