Bank of Mexico Chief: Rate Increases to Depend on Currency Moves, Inflation
August 26 2016 - 10:09PM
Dow Jones News
By Harriet Torry and Jon Hilsenrath
JACKSON HOLE, Wyo. -- The Bank of Mexico won't necessarily move
rates up in lockstep with the Federal Reserve the next time the
U.S. central bank raises interest short-term interest rates, Bank
of Mexico Governor Agustin Carstens said in an interview here
Friday with The Wall Street Journal.
Instead, the Mexican central bank's decision on rates will
depend on market movements, particularly of the Mexican peso, in
response to a Fed move and developments on inflation.
The Bank of Mexico has raised interest rates a full percentage
point so far this year, and might not need to tighten policy again
even if the Fed raises short-term interest rates in the coming
months, Mr. Carstens said on the sidelines of the Federal Reserve
Bank of Kansas City's annual economic symposium.
When asked if future moves depend on currency-market responses,
Mr. Carstens responded "yes," adding "but we have underlined that
we will be watching [the Fed] very carefully."
The Mexican central bank matched the U.S. Federal Reserve's
quarter-point interest-rate increase last December, explicitly
saying the increase was mainly in response to fears the Fed's move
could prompt peso depreciation and affect inflation. In February,
the Bank of Mexico raised its policy rate a half percentage point
in response to the impact of lower oil prices on the peso. It
raised interest rates by another half-percentage point in June.
Fed Chairwoman Janet Yellen said in Jackson Hole on Friday that
she believes the case for an increase in the U.S. central bank's
benchmark federal-funds rate has strengthened in recent months.
After Ms. Yellen's comments, traders put a 36% probability on a Fed
rate increase in September and a 64% probability for a rise by
December.
Mr. Carstens said a Fed rate increase "might trigger some
reactions from our side, but we will also respond to other
determinants of inflation."
"We are prepared to react to the situation if we see the action
of the Fed affects inflation, and the transmission mechanism would
probably be the exchange rate," said Mr. Carstens, who also chairs
the policy-advisory committee of the International Monetary
Fund.
Write to Harriet Torry at harriet.torry@wsj.com and Jon
Hilsenrath at jon.hilsenrath@wsj.com
(END) Dow Jones Newswires
August 26, 2016 21:54 ET (01:54 GMT)
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