Mexican bank raises key rate

Worried about rising inflation that is bedeviling the nation’s households, Mexico’s central bank on Friday raised its benchmark interest rate to 8%.

The 0.25-percentage-point hike in the overnight lending rate was the second in less than a month, underscoring the Bank of Mexico’s concern over rising consumer prices that have shown no sign of easing.

The peso strengthened to a five-year high against the dollar on the rate news, boosting Mexicans’ purchasing power -- at U.S. tourists’ expense.

The dollar was worth 10.18 pesos, down from 10.23 on Thursday and the lowest since May 2003. One dollar bought 10.91 pesos at the start of this year.

Analyst Alberto Bernal, head of fixed-income research for Bulltick Capital Markets in Miami, predicted at least two more quarter-point increases in coming months before the Bank of Mexico stops this year at 8.5%.

“The risk . . . remains tilted toward higher inflation,” said Bernal, who called the Bank of Mexico “hawkish.”

General inflation in Mexico reached an annualized rate of 5.26% in June. That’s the highest since November 2004 and well above the government’s long-term inflation target of 3%.

The real trouble spot is food, for which the annual inflation rate is running at nearly 10%. Prices for many basics have experienced double-digit increases this year, including rice, which has soared nearly 50% in 2008, according to central bank figures.

Food prices worldwide have surged because of a combination of factors, including strong global demand, poor harvests, exploding oil prices and the conversion of grains into biofuels.

Mexico’s government has tried a variety of measures to cushion these shocks. President Felipe Calderon last month announced a pact with food processors to freeze prices on more than 150 pantry staples through the end of the year. The government will spend about $20 billion this year subsidizing gasoline, which is priced at about $2.68 a gallon in most of the country.

Critics have dismissed such price-control efforts as unsustainable gimmicks.

With two quick rate hikes, Mexico’s independent central bankers have demonstrated their intention to blunt inflation with the tools available to them.

“Stable prices contribute to sustained economic growth,” the bank said in a statement. “To achieve that, it’s indispensable to anchor the inflationary expectations of the public. Monetary policy plays a fundamental role in that.”

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marla.dickerson@latimes.com