UPDATE 2-Mexican central bank says market risks remain, extends credit measures

(Adds details, context)

MEXICO CITY, Sept 15 (Reuters) - In an attempt to help its battered economy recover from the impact of the coronavirus pandemic, Mexico’s central bank said on Tuesday that it has extended measures designed to strengthen credit channels and provide liquidity in the financial system.

Banxico said liquidity facilities first announced in April will be extended until the end of February 2021, while a government securities repurchase window is being increased by a further 50 billion pesos ($2.37 billion).

So far, Banxico said, the measures have been successful.

Deputy Finance Minister Gabriel Yorio told Reuters in an interview last week that the ministry was talking to the banking industry and the central bank with an eye to extending relaxed banking credit rules to avoid defaults and loss of collateral.

The government wants to reduce the economic fallout of the pandemic in Mexico, which is still scarred by memories of the 1995 ‘Tequila crisis,’ when Mexicans lost homes and savings.

Yorio said the finance ministry and the central bank face a balancing act in coming up with looser regulations that are effective but at the same time tight enough to prevent a systematic financial risk.

The central bank said in a statement: “Even though our country’s financial markets have displayed more stable behavior recently, risks that could negatively affect the Mexican economy and financial system persist.

“The evolution of the pandemic, as well as the duration of containment and social distancing measures remain uncertain and could affect both local and international financial markets.”

Mexico was already in a mild recession before the pandemic.

Even under the central bank’s most optimistic scenario released recently, Latin America’s second-largest economy will be smaller at the end of 2021 than it was before the pandemic hit.

$1 = 21.0880 Mexican pesos Reporting by Diego Ore and Stefanie Eschenbacher; Editing by Frank Jack Daniel and Rosalba O’Brien