UPDATE 1-Mexico peso outlook should improve once Fed tension eases -central bank gov
(Adds details on Mexico's ability to act, quote on inflation expectations)
MEXICO CITY, July 23 (Reuters) - Mexico's Central Bank Governor Agustin Carstens said on Thursday conditions should improve for the peso currency once market turbulence over possible rate increases by the U.S. Federal Reserve bank has receded.
"This will even take us to a scenario that in the end should favor the peso because the Federal Reserve would be tightening its monetary policy due to the belief that the U.S. economic recovery is strengthening," he told Mexican radio.
The Mexican peso has hit record lows against the dollar in recent weeks. Analysts polled by Reuters said they expected the U.S. central bank to raise interest rates in September.
After the peso first slumped to record lows earlier this year, Mexico started dollar auctions to support the currency. Carstens said the country had tools at its disposal to act if it saw unwarranted developments in exchange rates.
"If the depreciation is causing movements in inflation expectations, we will take the appropriate measures, we will also take them when the Federal Reserve acts," he said. (Reporting by Jean Luis Arce and Adriana Barrera)
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