UPDATE 1-Mexican central bank head says cautiously monitoring peso rate
(Adds Carstens' comments, background, byline)
By Anthony Esposito and Felipe Iturrieta
SANTIAGO Dec 5 (Reuters) - Mexico's central bank is keeping its eye on the exchange rate, bank governor Agustin Carstens said on Friday, after the peso slumped to a fresh 2-1/2-year low against the U.S. dollar.
"We have to monitor (the exchange rate) with a lot of caution," said Carstens on the sidelines of an International Monetary Fund economic forum in Santiago when asked about the recent fall in the currency.
His comments came after Mexico's central bank on Friday held borrowing costs steady but said the fall in the peso could add to inflation pressures, and noted that growing social unrest in Latin America's No. 2 economy may crimp economic growth.
Political protests have erupted across Mexico after an apparent massacre of 43 students in September in the southwestern state of Guerrero, where corrupt police handed the students over to a drug gang.
Regarding the impact the protests could have on the economy, Carstens said "certainly they are factors that could have an impact on investment and consumer confidence."
"However, measures are being taken ... and I expect this to get resolved bit by bit."
Asked if the recent drop in oil prices would dampen investment in Mexico, Carstens said the effect should be limited.
"Normally people who invest in oil do so with a long-term horizon, so really there should be little impact," he said. (Writing by Anthony Esposito; Editing by James Dalgleish and Meredith Mazzilli)
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