(Adds central bank comments, peso price)
MEXICO CITY Oct 13 Mexican policymakers were
united in carrying out their third interest rate increase this
year to counteract inflationary pressures from a deep slide in
the peso, and they warned nervousness about the U.S. election
could fuel greater losses.
Central bank board members voted 5-0 to raise the bank's key
rate 50 basis points to 4.75 percent in a Sept. 29
decision, minutes from their meeting showed.
Most members thought the central bank faced difficult
decisions since economic growth had slowed while inflationary
pressures had increased due to the peso's depreciation.
The peso plumbed record lows in September and nearly broke
past 20 per dollar as U.S. Republican presidential candidate
Donald Trump gained on his Democratic rival Hillary Clinton. The
peso bounced back to about 19 per dollar this month as polls
showed Clinton increasing her lead over Trump, who has threatend
to tax remittances from immigrants to pay for a border wall and
unwind free trade with Mexico.
All members agreed they needed to act to anchor inflation
expectations and the majority thought it was important to be
clear that they would respond "opportunely" to ensure inflation
remained under control.
Analysts said the central bank could match any move by the
U.S. Federal Reserve to raise rates, though governor Agustin
Carstens said earlier this month the bank might not follow the
Fed if the outcome of the U.S. election favors Mexico.
Carstens had previously said a Clinton victory would be
better for Mexico.
Alberto Ramos, an economist at Goldman Sachs, said in a note
that a sharp appreciation of the peso back to around 17 to 18
per dollar could give Mexico room to not follow the Fed.
Mexico's annual inflation rate has crept back from a record
low to about the central bank's 3 percent target. The peso
was little changed from its levels before the minutes
were released, down 0.5 percent at 19.01 per dollar.
One member of the board thought it was important to send the
message that the central bank was not defending a certain level
in the peso exchange rate, the minutes showed.
Most members noted there was a perception that Mexico's
public finances had weakened, but that the 2017 budget proposal,
which calls for spending cuts, was a step "in the right
A majority of the board thought that global markets could
see greater volatility, particularly if nervousness about the
U.S. election deepens.
The central bank said the rate increase, which followed
hikes in December, February and June, did not intend to start a
cycle of rate increases.
(Reporting by Alexandra Alper and Michael O'Boyle; Editing by
Bill Trott and Andrew Hay)