May 25, 2016 / 8:37 PM / 2 years ago

UPDATE 2-Mexico's Carstens sees no peso attack, as bets recede on rate hike

(Adds Carstens comment on local radio)

MEXICO CITY, May 25 (Reuters) - Mexico’s peso is not seeing a new speculative attack despite its recent slump, Central Bank Governor Agustin Carstens said on Wednesday, prompting investors to cut back bets on an aggressive Mexican interest rate hike.

A tumble in the peso in May has stoked expectations that Mexico could raise interest rates next month in a bid to defend the currency.

But Carstens said the peso’s depreciation had not been driven by any specific bet against the peso, which has weakened along with other emerging market currencies this month.

“We certainly are not seeing a speculative attack,” Carstens told a conference in Mexico City about the central bank’s quarterly inflation report.

His comments fed expectations that the central bank was not close to intervening in currency markets anytime soon.

Yields on Mexican interest rate swaps fell after Carstens’ comments, as investors dialed back expectations that the central bank would hike its benchmark interest rate at the next meeting in late June.

Mexico’s peso has slumped about 7 percent this month, the second-worst performer among the world’s 36 most-traded currencies, behind the South African rand.

A sharp drop in Mexico’s peso pushed the central bank in February to intervene directly in currency markets for the first time since 2009 and to raise interest rates unexpectedly after an unannounced meeting.

Mexican policymakers said then the peso was being targeted by electronic trading programs, and cited the relatively sound position of the economy.

Carstens said Mexico had not ruled out intervening again under exceptional circumstances.

According to a Reuters poll taken earlier on Wednesday, a majority of economists thought it was unlikely Mexico’s central bank would make another unexpected rate hike in a bid to support the peso and they saw less than a 50 percent chance of more intervention.

In an interview on local radio on Wednesday evening, Carstens said the central bank would be “very attentive” to the relative monetary policy between the United States and Mexico.

“In the event that there is movement from the central bank of the United States, it is feasible that we might have to react also,” he said.

The central bank maintained its 2016 economic growth forecast at between 2.0 and 3.0 percent, but trimmed its view for 2017 to between 2.3 and 3.3 percent because of weakness in U.S. industrial output, Carstens said during the conference.

In its quarterly report, the bank said it saw inflation around 3 percent at the end of the year and that it would closely watch the sharply depreciated Mexican peso for any signs of pass-through to inflation. (Reporting by Luis Rojas and Michael O’Boyle; Additional reporting by Tomas Sarmiento; Editing by Peter Cooney and Richard Pullin)

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