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Mexico central bank raises benchmark rate to 8.25%

The central bank of Mexico raised the target for the overnight interbank interest rate by 25 basis points to 8.25%, citing inflation expectations that remain above-target and the emergence of inflationary risks.

Banco de México said inflation fell to 4.72% in November from 4.90% in October. However, the central bank noted that inflation expectations for different terms have increased.

"[H]eadline inflation expectations for the medium and long terms continue to be above the 3% target, at around 3.50%," the central bank said. "As for information drawn from market instruments, medium- and long-term inflationary risk premia remain at high levels."

The bank noted the external and domestic pressures on the Mexican peso exchange rate as a risk to inflation, along with rising prices for energy and agricultural products, an escalation of protectionist and compensatory measures worldwide, and a deterioration in public finances.

"[T]he balance of risks for the forecast trajectory of inflation has deteriorated and remains biased to the upside, in an environment of high uncertainty," the central bank added.