Mexico ups interest rate, citing political uncertainty

[MEXICO CITY] Mexico's central bank raised its key interest rate on Thursday, citing a slowing global economy and political uncertainty created by the arrival of leftist President-elect Andres Manuel Lopez Obrador, who takes office on December 1.

The Bank of Mexico raised the rate by 0.25 point to eight percent, near its all-time high of 8.25 per cent in 2008.

The bank attributed the move to "market concerns" over how Lopez Obrador will handle Latin America's second-largest economy.

The anti-establishment leftist has alarmed the business world in recent weeks by canceling a US$13-billion airport project for Mexico City after holding a controversial referendum on the issue.

The airport vote, which was not overseen by electoral authorities, "led several ratings agencies to change their outlook for the country's sovereign debt from stable to negative," the central bank said.

A bill introduced by Lopez Obrador's party that would dramatically slash the fees that banks can charge clients also sent stocks and the Mexican peso plunging last week - though the president-elect later soothed markets by saying he did not back the proposal.

The bank also cited lower growth forecasts for the world economy for this year and next.

Mexico's inflation rate slowed slightly to 4.9 per cent in October, but is still above the central bank's target range of two to four percent.

The uncertain outlook for Mexico comes despite the fact that the country reached a deal on September 30 on a new free-trade agreement with the United States and Canada, updating the 1994 Nafta deal - a cornerstone of the Mexican economy - after more than a year of strained negotiations.

AFP