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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