February 8, 2018 / 7:59 PM / 10 months ago

UPDATE 1-Mexico central bank hikes key rate to contain inflation worries

(Adds central bank comments)

MEXICO CITY, Feb 8 (Reuters) - Mexico’s central bank raised interest rates on Thursday to a nine-year high and said it could act again, if needed, to contain worries that inflation may not cool as quickly as forecast.

Banco de Mexico’s governing board unanimously voted to hike the key rate by 25 basis points to 7.50 percent, its highest since February 2009, as forecast by 17 of 20 analysts polled by Reuters last week.

Policymakers said in their statement that the risks to inflation had increased, saying they acted in order to anchor inflation expectations, which had recently eroded.

“If necessary, monetary policy will act in a timely and firm manner to strengthen the anchoring of medium and long-term inflation expectations and achieve the convergence of inflation to the 3 percent target,” the bank’s post-meeting statement said.

The central bank warned that “unfavorable” developments in talks to renegotiate the North American Free Trade Agreement (NAFTA) as well as “adverse” reactions in financial markets to U.S. interest rate hikes could hit the peso again and risk fanning inflation higher.

A central bank poll last week showed analysts raised the annual inflation estimates for 2018 to 4.06 percent, up 21 basis points from the previous poll in mid-December.

Thursday’s hike was the second in a row by new Governor Alejandro Diaz de Leon, who led a quarter-point hike in December shortly after taking over at the bank.

The central bank said on Thursday it now thought that inflation would take longer than previously forecast to fall back toward its 3 percent target.

Previously the bank expected inflation to be close to its target by the end of this year, but it now said it would take until early 2019 to reach target.

Earlier on Thursday, data showed that the pace of Mexican consumer prices cooled less than expected in January. The rate fell from a 16-1/2-year high in December of 6.77 percent to 5.55 percent.

Going forward, policymakers said they would be watching out for any pressure on consumer prices from peso weakness while also gauging the need to follow any interest rate increases by the U.S. Federal Reserve. (Reporting by Michael O’Boyle and Anthony Esposito Editing by Jonathan Oatis)

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