Mexico seen hiking rates after peso sinks on U.S. election fears

September 26, 2016 1:54 PM EDT

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MEXICO CITY (Reuters) - Mexico's central bank is expected to hike interest rates on Thursday after the peso slumped to a record low on uncertainty about the outcome of the U.S. presidential election and the next move of the U.S. Federal Reserve.

The central bank will raise its benchmark interest rate by half a percentage point to 4.75 percent, according to the median of a Reuters poll of 21 analysts.

Economists said that the bank would likely raise interest rates in a bid to lift the peso and ensure that the depreciation of the currency does not end up driving up inflation.

The peso sank to a record low near 20 per dollar this month.

Inflation rose faster than expected in early September and the annual core reading rose just above the central bank's 3 percent target for the first time since late 2014.

Eleven of the analysts polled projected a 50 basis point hike, two expected a quarter percentage point hike and one projected a 75 basis point hike. The central bank will issue its decision on Thursday at 1 p.m. local time (1800 GMT)

Seven analysts said they expected the bank to leave its rate at 4.25 percent. Some of them said the central bank would likely want to wait until after to the U.S. election to ensure it has room to act in case the peso sinks even lower.

The following central bank decision comes on Nov. 17, after the U.S. election.

The peso has depreciated as U.S. Republican candidate Donald Trump has gained ground in polls since mid-August. Trump has threatened to unwind a free trade deal with Mexico and to block remittances to pay for a border wall.

(Reporting by Miguel Gutierrez and Jean Luis Arce; Writing by Michael O'Boyle)



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