* No hesitation to use policy tools if inflation too high
* Central bank chief notes important to proceed with caution
MEXICO CITY Oct 8 A recent rise in Mexico's
peso should help offset the impact of higher prices and limit
the increase in inflation, central bank governor Agustin
Carstens was quoted as saying on Monday.
Annual inflation breached the central bank's 4 percent
tolerance threshold for a fourth straight month in early
September, accelerating to a 2-1/2 year high of 4.73 percent.
Carstens said the central bank was not comfortable with
current high inflation, but also stressed it was important not
to choke growth with premature or ineffective interest rate
"There's a very important mitigating factor looking forward
which is that the exchange rate has appreciated significantly in
the past month, which mitigates the impact of higher commodity
prices and of some of the goods in dollars," Carstens told
newspaper 24 Horas in an interview.
The peso fell to a three-year low in early June,
dragged down by fears about the euro zone debt crisis. By the
end of September though, it had rebounded more than 13 percent
against the dollar.
At its last meeting the central bank said it would not
hesitate to raise interest rates - which have been held at 4.5
percent since mid-2009 - if price pressures became more
"We're evaluating the whole environment," said Carstens.
"It's not certain that there's a generalized increase in prices
but it is a complex situation in which the Bank of Mexico isn't
comfortable with inflation above four percent, and if
circumstances require we won't hesitate to use our instruments."
Still, investors currently price in no rate hike until April
2014 and Carstens said it was important not to act in haste.
"We have to be cautious and not introduce anything which
might cost growth when the situation could be resolved by itself
or when monetary policy might not have the desired effect," he
A spike in fresh food prices partly caused by an outbreak of
avian flu has helped to fuel inflation, and policymakers have
said they expect the increase to be temporary.
Carstens said he expected Mexico's economy, the
second-largest in Latin America, to grow close to 4 percent this
year and maybe 3.7 percent next year.
He said the country's reliance on oil revenue from state
monopoly Pemex was limiting potential growth and urged
policymakers to consider more private investment in the oil
sector, something incoming president Enrique Pena Nieto has
named as a priority.