UPDATE 2-Mexico central bank holds rate steady, but eyes risks from peso
(Adds comment from economist)
By Michael O'Boyle and Alexandra Alper
MEXICO CITY Feb 4 (Reuters) - Mexico's central bank held borrowing costs steady on Thursday, but said it would monitor increasing risks to inflation from a slump in the peso, suggesting it could hike interest rates if there is further weakness in the currency.
The Banco de Mexico left its key rate at 3.25 percent, as expected by all 15 analysts surveyed by Reuters last week.
The central bank said in a statement that risks to inflation had increased, and added that it would closely monitor the exchange rate and the risk that currency weakness could fan consumer price pressures.
Mexican policymakers also suggested they would monitor the moves of the U.S. Federal Reserve without "neglecting" the slack in the economy.
The central bank's statement brought the peso to the front of its list of key elements that could determine its next policy move.
"(This) can be seen as an official warning from the central bank that it may increase the overnight rate in the foreseeable future if the peso continues to weaken against the U.S. dollar, even if the U.S. Fed is on hold," Credit Suisse economist Alonso Cervera wrote in a note to clients.
The Banco de Mexico hiked its key rate in December for the first time in seven years from a record low of 3 percent, hoping to support the peso after a rate increase by the Fed threatened to sap demand for emerging market assets. Continuación...