Mexico's Carstens Says Matching Fed Monetary Policy `Essential'

  • The question is whether to act before or after U.S., he says
  • Staying in step seen as one way to help bolster tumbling peso

Mexico central bank Governor Agustin Carstens said it’s “essential” that the country match the U.S. Federal Reserve on monetary policy, with the question being whether to act before or after any Fed moves.

The peso is plunging in value against the U.S. dollar, in part, because of “the monetary position between Mexico and the U.S.,” Carstens said Saturday in an interview with El Financiero Bloomberg TV at the World Economic Forum in Davos, Switzerland. “We’d like to at least eliminate that factor.”

Banco de Mexico raised borrowing costs in December for the first time since 2008 following an increase by the Fed, even as analysts forecast economic slack to persist and inflation to remain near the bank’s 3 percent target in 2016. The central bank had said that failing to match the Fed could lead to a disorderly sell-off in the peso, which touched a record low this week, and spur faster inflation.

“Following the Fed is essential,” Carstens said. “Whether the decision is taken before or after will depend a bit on other intervening factors that we can see at the moment we make our decisions.”

Mexico will probably increase interest rates by 0.5 percentage point this year, compared to a 0.75-percentage-point boost for the U.S., according to the median forecast of economists surveyed by Bloomberg.

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