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Mexico City • Mexico raised borrowing costs for the first time since 2008 following Wednesday's increase by the Federal Reserve amid concern a smaller rate advantage versus the U.S. could lead investors to pull funds from Latin America's second- largest economy.

Banco de Mexico's board, led by Governor Agustin Carstens, boosted the overnight rate 0.25 percentage point to 3.25 percent Thursday from a record-low 3 percent, as forecast by 21 of the 26 economists surveyed by Bloomberg. Five expected no change.

The Fed lifted borrowing costs for the first time in almost a decade, exiting record lax monetary policy that encouraged investors to pour money on higher-yielding developing nations.

Mexican policymakers have been concerned that the long- awaited rate liftoff in the United States, Mexico's primary trade partner and the world's largest economy, could lead to capital outflows and financial instability in their country.

The peso on Monday weakened to its lowest against the dollar since a 1993 re- denomination in anticipation of the Fed's decision. The central bank has spent about $24 billion in 2015 on intervention programs to support the currency.

"This isn't a surprise at all," Alonso Cervera, chief Latin America economist at Credit Suisse Group in Mexico City, said before the decision.

"The central bank has been watching the Fed very closely and preparing the market for this. It's insurance against potential adverse market developments on the back of the Fed move."

Policymakers were able to keep the key rate at a record low as inflation decelerated to the slowest pace in more than four decades and the central bank cut its 2015 growth forecast four times amid declining oil output and a slower-than- anticipated U.S. recovery.

Thursday's rate increase brings to an end an almost seven-year period beginning with Carstens's predecessor, Guillermo Ortiz, in which Banxico cut rates 11 times as the economy struggled with the global financial crisis and its aftermath.

Many economists anticipated that Mexico would follow the Fed after Banxico in July changed its meeting schedule for the rest of 2015 to be able to better react to U.S. moves.

Mexico's policymakers have repeatedly stressed the importance of their monetary stance relative to the U.S. The Fed's increase on Wednesday briefly reduced Mexico's rate premium over the United States to 2.5 percentage points, the smallest since Mexico adopted a new benchmark in 2008.

The Federal Open Market Committee unanimously voted Wednesday to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. It signaled that the pace of subsequent increases will be "gradual."

The peso plunged 23 percent in the past year and a half through Wednesday, reflecting the decline in oil prices and expectations for higher U.S. borrowing costs. Crude's drop and falling output at state-owned producer Petroleos Mexicanos have hurt the Mexican economy and forced the government to cut spending.

"If Mexico doesn't follow the Fed, there could be a disorderly effect on the bond market and the exchange rate," Jose Velasco, an economist at Casa de Bolsa Ve Por Mas in Mexico City, said before the decision. "That kind of outcome is what Banxico wants to avoid."

Policymakers have said that while they're on alert for signs that the peso is stoking broader inflation, the currency's slump has had a limited impact on consumer prices. Annual inflation slowed to 2.21 percent in November and has been below the central bank's 3 percent target for seven months.

While Mexico's economy has been hurt by declining oil output and sluggish exports, the latest data on growth has pointed to improvement.

Mexico's economy expanded at a faster pace than any economist projected in the third quarter, fueled by a rebound in domestic consumption.