U.S. election results will determine Mexico’s next rate move

Mexico’s central bank may not follow any impending interest rate increase by the U.S. Federal Reserve if the outcome of the U.S. presidential election is seen as favorable to Mexico, the bank’s Governor Agustin Carstens said on Tuesday.

Asked on local television whether Mexico would seek to follow a rate hike by the Fed, Carstens referred to the November election, speaking just a few days after the Mexican central bank raised its benchmark interest rate by 50 basis points.

“We’ll have to see the result of the elections, if there’s a good result, we’ve moved ahead of the Fed, and possibly it won’t be necessary to raise them (rates),” Carstens said.

Carstens said last week that a victory by Republican candidate Donald Trump would hit Mexico like a hurricane, and noted that a win by Democratic nominee Hillary Clinton would produce a more favorable scenario for the Mexican economy.

Trump has vowed to build a wall on the border with Mexico and threatened scrap the North American Free Trade Agreement if he wins, as well as berating U.S. firms that invest in Mexico.

By a huge margin, the United States is Mexico’s main trading partner, and economic analysts say concern over any potential trade restrictions have weighed on the peso currency, which last month hit a record low against the U.S. dollar.

The central bank said it had raised rates last week to contain possible inflationary risks. Carstens noted on Tuesday that it was important inflation did not “take off” beyond 3 percent or that could imply higher interest rates.

The bank targets inflation of 3 percent with a one percentage point tolerance zone on either side. In early September, Mexico’s core annual inflation rate went just above 3 percent for the first time since late 2014.

(Reporting by Dave Graham and Anahi Rama; Editing by Kim Coghill)

Puerto Vallarta News

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