MEXICO CITY — Mexico’s central bank has decided to raise its key interbank interest rate from 7.25 percent to 7.5 percent, citing expectations of a U.S. rate increase in March and continued volatility in exchange rates for the Mexican peso.

The Bank of Mexico said Thursday that inflation in 2017 ran at 6.77 percent, but dropped a bit to 5.55 percent on an annual basis in January.

The bank said it expects inflation will continue to decline throughout 2018, and reach the target of 3 percent by the first quarter of 2019.

The peso dropped almost 1 percent in value against the U.S. dollar Thursday, closing at 18.86 to $1 before the announcement was made.