MEXICO CITY (Reuters) - Mexico's central bank could deliver a bigger-than-expected interest rate hike on Thursday in a bid to support the peso after the currency was hammered to a record low by last week's election of Donald Trump as U.S. president.
The central bank had been expected to raise its benchmark interest rate
By Tuesday, the market was betting on a 75-basis-point hike, according to the results of the central bank's weekly debt auction. The central bank will issue its decision on Thursday at 1 p.m. (1900 GMT)
The peso
"The central bank needs to send a strong message," said Carlos Serrano, an economist at BBVA (MC:BBVA) Bancomer, who is expecting a 75-basis-point hike.
"First, just to minimize the possibility of capital outflows, but they also need to do it to maintain inflationary expectations," he said.
Eleven analysts in Monday's poll expected a half-percentage-point increase, three saw a 75-basis-point hike and one bank expected a full percentage-point increase.
The peso had been pressured since mid-August whenever Trump gained ground in opinion polls. The Republican candidate threatened to unwind a free trade deal with Mexico and block the money sent home by migrants to pay for a border wall.
The central bank has lifted borrowing costs three times already this year in half-percentage-point hikes in a bid to bolster the peso, which has also been hurt by concerns about rising government debt and a bailout of state oil firm Pemex.
Mexico's annual inflation rate rose past the central bank's 3 percent target level in October for the first time in over a year and a half.
Although the peso saw big losses earlier in the year, Serrano said there was now a greater risk that inflation could pick up pace after Trump's win shifted the entire model analysts had been using to look at the peso.
"Before, the expectation was that the peso's weakness was something transitory," Serrano said. "Economic agents now think we have reached a new equilibrium," above 20 per dollar, he said.