March 20, 2015 / 2:55 AM / 4 years ago

UPDATE 1-Mexico watching Fed impact on inflation closely - Carstens

(Recasts throughout, adds quotes, details on inflation outlook)

ACAPULCO, Mexico, March 19 (Reuters) - Mexico may hike its benchmark interest rate if a normalization of U.S. monetary policy puts at risk the Mexican goal of keeping inflation at around 3 percent, central bank governor Agustin Carstens said on Thursday.

Mexico, which reached its 3 percent inflation target earlier this month, is contending with a sharp slide in the peso currency against the dollar, which Carstens said had so far had a “very limited” impact on price developments.

However, Carstens said during a banking conference in Acapulco the central bank was very mindful of how the prospect of rising U.S. interest rates could affect Mexico. The U.S. Federal Reserve is expected to raise rates later this year.

“The board of the Bank of Mexico could adjust its monetary policy via increases in the ... interest rate if it believes consolidation of inflation convergence towards our permanent goal of three percent is in danger, which could happen if the Federal Reserve starts normalizing its policy,” he said.

A slump in global oil prices has helped drag Mexico’s peso down to record lows against the dollar in recent weeks.

Mexico began daily auctions of $52 million this month following the peso’s slide. Carstens said the currency’s decline had been mainly due to external factors and not because of any internal problems in Latin America’s no. 2 economy.

“The central bank ... has reiterated more than once it will remain very watchful of the exchange rate development and the impact on inflation in order to be able to adjust the monetary policy stance in an opportune manner if necessary,” he said.

Carstens said the central bank would be vigilant of any factors that could affect inflation, which included the degree of slack in the Mexican economy.

“In general terms, the outlook for inflation is favorable,” the central bank chief said. (Reporting by Christine Murray and Tomas Sarmiento; Editing by Paul Tait)

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