UPDATE 1-Mexico central bank unanimous in rate hold, flags risk of peso slump

4/1/16 Reuters

mexican pesosMexico’s central bank was unanimous in its decision to keep interest rates on hold last month, but most board members flagged the risk of a disorderly slump in the peso, which could hit inflation, meeting minutes showed on Friday.

At their March 18 meeting, policymakers voted 5 to 0 to keep their benchmark interest rate at 3.75 percent after a surprise 50-basis-point hike in February to shore up the peso, which has fallen sharply against the dollar since late 2014.

The Mexican currency, which has been battered by tumbling oil prices, however, hit its highest level in 2016 this week after U.S. Federal Reserve President Janet Yellen said the Fed should be cautious in hiking rates.

Fears of a Fed hike spurring capital flight from emerging markets prompted Mexico to raise interest rates in lock step with the U.S. central bank in December.

Some policymakers said Mexico’s bank could adjust interest rates independently of the Fed if inflation expectations diverge from the central bank’s 3 percent target or if faced with further episodes of market volatility.

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