MEXICO CITY, Aug 6 (Reuters) - A sharp slump in Mexico’s peso poses upside risk to inflation though its impact on prices so far has been limited, Mexican central bank deputy governor Manuel Sanchez said on Thursday.
Mexico’s annual inflation rate cooled in early July to a new record low below the central bank’s 3 percent target, despite the peso’s tumble as oil prices sank and investors worried about a U.S. interest rate hike.
According to a presentation given in Chicago and posted on the central bank website, Sanchez said improved growth could create demand-side pressures on consumer prices.
Sanchez added that there may be no repeat in the coming years of positive shocks to inflation in 2015.
Mexico’s central bank held interest rates steady last week, and is expected to hike rates when the U.S. Federal Reserve begins its own hiking cycle, forecast to start in September. However, Central Bank Governor Agustin Carstens has warned the bank could raise rates at any time if the peso needs support.
Latin America’s second-largest economy grew at its slowest pace in over a year in the first quarter, undermined by flagging oil revenue and weak U.S. growth. (Reporting by Alexandra Alper; Editing by Meredith Mazzilli)