Mexico central bank faces 'complex environment': Diaz de Leon

Tue Feb 21, 2017 12:26am EST
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By Michael O'Boyle and Ana Isabel Martinez

MEXICO CITY (Reuters) - Mexico's central bank faces difficult decisions as it balances a spike in inflation against an expected economic slowdown, Deputy Governor Alejandro Diaz de Leon said on Monday.

"We are in an especially complex environment," Diaz de Leon told Reuters in an interview.

Diaz de Leon pointed to the heightened risk of inflation from a weak peso and a hike in gasoline prices as well as the threat to Mexican growth from uncertainty about the impact of U.S. President Donald Trump's policies on Mexico's economy.

Mexico's peso hit a record low of around 22 per dollar just before Trump's inauguration in January because of threats to impose tariffs on Mexican-made goods.

The peso MXN= gained back some ground when Trump did not immediately move to withdraw from the North American Free Trade Agreement between the United States, Mexico and Canada. Some analysts say the market is betting that a renegotiation of NAFTA may not hit Mexico's exports as hard as feared.

"It is very premature to say what type of scenario is incorporated in the exchange rate," Diaz de Leon said.

A Reuters poll of economists this month found Diaz de Leon was considered the most likely to replace outgoing central bank chief Agustin Carstens.

Carstens said in December that he would resign at the end of June to take the top post at the Bank for International Settlements in October.   Continued...

Alejandro Diaz de Leon, the newest member of the Mexican central bank, speaks on the phone before an interview with Reuters in Mexico City, Mexico February 20, 2017. REUTERS/Jose Luis Gonzalez