MEXICO CITY, Jan 19 (Reuters) - A dollar auction program run by Mexican authorities has helped stabilize the country’s peso but policymakers could go further and raise interest rates if weakness in the currency fans inflation, Central Bank Governor Agustin Carstens said in an interview published on Monday.
Mexico’s currency commission, run by the finance ministry and the central bank, restarted the dollar auction program last month to support the peso after it had fallen sharply.
The peso went on to hit its weakest levels against the dollar in nearly six years, but it has firmed a bit since.
The auction program, in which the bank offers $200 million for sale when the peso drops 1.5 percent from its fix rate in the previous session, has only been triggered once so far. But Carstens said the signal sent by its announcement has helped the peso.
“The measure taken by the foreign exchange commission has been effective and there is no reason to change it,” Carstens said in a interview published in daily Excelsior on Monday.
Carstens said he expects the U.S. Federal Reserve to raise interest rates this year, which could spur further weakness in the Mexican peso. He suggested that policymakers would raise interest rates if peso weakness fans inflation.
“If we see that this could happen, or if it is imminent, we will act. But this is contingent on what the Fed does and the phenomena that could affect convergence to the inflation target,” Carstens said.
Mexico’s annual inflation rate cooled in December but it was still above the central bank’s 4 percent ceiling. Policymakers expect a significant drop in the rate in January and project inflation will cool to near the bank’s 3 percent target by midyear. (Reporting by Michael O’Boyle; Editing by Peter Galloway)