October 29, 2015 / 7:50 PM / in 4 years

UPDATE 1-Mexico central bank holds interest rate, eyes Fed move

(Adds central bank comments, background)

MEXICO CITY, Oct 29 (Reuters) - Mexico’s central bank held borrowing costs steady on Thursday, saying the growth outlook had worsened while inflation remained tame, but policymakers hinted they are prepared to raise interest rates once the U.S. Federal Reserve tightens credit.

The Banco de Mexico left its benchmark rate at a record low of 3.00 percent, as expected by all 20 analysts surveyed by Reuters last week.

On Wednesday, the U.S. Federal Reserve kept rates unchanged but dropped a strong hint that it could raise them at its next meeting in December.

Mexican central bank policymakers suggested in a statement that once the Fed tightens credit they could follow suit, noting they were watching the “relative monetary stance between Mexico and the United States.”

The country’s peso currency has hit successive record lows this year on prospects that higher U.S. interest rates will sap demand for higher-yielding, but riskier, emerging markets securities.

Yields on short-term Mexican interest rate swaps have jumped since Wednesday as investors increased bets that Mexico will hike its benchmark rate by 25 basis points in December.

The Mexican central bank said so far the peso’s slump has had an “ordered and gradual” impact on consumer prices, suggesting it was unlikely to move before the Fed.

Earlier this year, the central bank suggested it could hike rates before the Fed if the peso slump led to widespread pressure on consumer prices. But the peso has rebounded from a record low in late September while foreign holdings of Mexican peso bonds have held near record highs.

Data last week showed annual inflation slowed to a new record low of 2.47 percent in the 12 months through mid-October, and the central bank said inflation would rise next year but remain close to 3 percent.

Policymakers said the economic outlook has worsened as growth in exports has flagged.

Economists have dialed back economic growth forecasts this year to 2.22 percent from above 3 percent early this year, according to a poll from Banamex last week. (Reporting by Simon Gardner and Michael O’Boyle; Editing by Richard Chang)

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