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UPDATE 2-Mexico cenbank likely on hold before Fed rate hike -minutes
May 14, 2015 / 2:41 PM / 3 years ago

UPDATE 2-Mexico cenbank likely on hold before Fed rate hike -minutes

(Adds foreign exchange intervention reference)

MEXICO CITY, May 14 (Reuters) - Most of Mexico’s central bankers are eyeing sluggish economic growth, suggesting they will hold interest rates steady in the coming months, but said they could quickly raise rates if a steep slide in the peso hits inflation expectations.

Central Bank board members voted 5-0 at their April 30 meeting to hold their benchmark rate at a record low of 3.0 percent, minutes showed on Thursday.

All members agreed it was inappropriate to raise interest rates now, with the majority seeing more costs than benefits from hiking before the U.S. Federal Reserve raises borrowing costs.

Still, all members agreed they would quickly act with “all available tools” if inflation expectations become unanchored - for example, if the peso continues to slide.

Mexico’s peso in March sank to a historic low against the dollar, hammered by a slump in oil prices and fears that an imminent U.S. rate hike may push investors to dump emerging market assets.

A majority of board members said that they could not rule out further international market volatility hammering the peso, but added they have the intervention tools to ensure a well functioning exchange market.

However, most central bankers agreed that strong macroeconomic fundamentals are key for those tools to work, highlighting the importance of fiscal consolidation.

Mexico’s government cut its 2015 budget by nearly 3 percent in January, after a drop in global oil prices hurt public finances.

A majority of Banco de Mexico’s board said economic expansion had been sluggish but that the risks of slower growth had not increased since the previous meeting.

Latin America’s No. 2 economy is expected to grow around 2.9 percent this year after a 2.1 percent expansion last year, hit by weak consumer demand.

Most policymakers said they expect inflation to remain around their 3 percent target this year and close 2015 slightly below that level.

Mexico’s annual inflation rate eased in April to just above the central bank’s 3 percent target partly due to lower electricity costs, even as a slumping peso threatens to push consumer prices higher. (Reporting by Alexandra Alper and Michael O‘Boyle; Editing by Matthew Lewis and W Simon)

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