November 18, 2016 / 3:57 PM / 2 years ago

UPDATE 3-Mexico leaves door open for another rate hike in 2016

(Adds comment from Central Bank deputy governor)

MEXICO CITY, Nov 18 (Reuters) - Mexico could raise interest rates again before the end of 2016, Central Bank Governor Agustin Carstens said on Friday as the country tries to curb inflationary pressures from a sharp drop in its peso currency.

“There’s no way I will rule that out,” Carstens told local radio when asked about the prospect of another rate hike.

On Thursday, the central bank raised its key rate by 50 basis points to 5.25 percent and warned that the election of Donald Trump as U.S. president had cast doubt on the direction of Latin America’s second-largest economy.

Following a campaign marked by threats to rip up the North American Free Trade Agreement and punish U.S. companies that move operations to Mexico, Trump’s victory had already sent the peso to a record low against the dollar.

A Central Bank deputy governor said late on Friday that the depreciation of the peso will increase prices on some goods.

“As is to be expected, there will be pass-through to certain prices in the economy from the exchange rate,” Deputy Governor Manuel Ramos-Francia said on local radio.

The bank’s rate increase took Mexico’s borrowing costs to their highest level in more than seven years.

“What we’re trying to do is reach a balance, which is not easy, between not lagging behind reality and on the other hand, neither do we anticipate news (or) speculation that might not be right and that could impose additional costs on the economy that aren’t necessary to impose,” Carstens said.

He described the 50 point hike as “significant” after he was asked why the bank did not approve a bigger increase.

The bank will closely monitor the U.S. Federal Reserve’s December monetary policy decision, scheduled one day ahead of the Mexican central bank’s Dec. 15 meeting, Carstens said.

He cautioned, however, that the bank was not “going to seek to preempt events we don’t know,” and noted that higher borrowing costs could affect consumers and businesses. (Reporting by Ana Isabel Martinez, Veronica Gomez, Miguel Angel Gutierrez and Natalie Schachar; Editing by Lisa Von Ahn and Mary Milliken)

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