Mexican peso weakens almost 1.5 percent as rate hike disappoints

November 18, 2016 4:20 AM EST

A picture illustration shows Mexican pesos and U.S. dollars banknotes in Mexico City July 6, 2015. REUTERS/Edgard Garrido


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LONDON (Reuters) - The Mexican peso weakened almost 1.5 percent to 20.75 per dollar in European trading on Friday, as the central bank's 50 basis point rate hike was seen as too small to stave off inflationary pressures.

Mexico's central bank raised rates to 5.25 percent on Thursday, the highest level since May 2009, but the market had been looking for a hike of at least 75 basis points.

The peso has been in the firing line over worries that U.S. president-elect Donald Trump will carry out his campaign threats to impose trade tariffs and block remittances.

The peso is still flat against the dollar this week but shed almost 9 percent last week after tumbling to a record low in the wake of Trump's win, posting its biggest two-day loss since a 1995 devaluation.

It currently stands some 3 percent off record lows.

"The market is saying that given the fall in the currency you will have a significant inflationary impact," said Jakob Christensen, head of emerging markets research at Deutsche Bank.

"Inflation is on the rise and so by just raising 0.5 percent you might not stem the pass through from the depreciation of the peso."

(Reporting by Claire Milhench)



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