mexico city<u+2014>the bank of mexico<u+2019>s five board members all agreed last month that higher interest rates were necessary to stave off incipient inflation pressures amid a number of external and local risks to the mexican peso, minutes of the meeting showed thursday. the board voted unanimously on sept. 29 to raise the overnight interest rate target by a half percentage point to 4.75%, its third rate increase of the year, after the peso had again reached new lows against the u.s. dollar. the currency depreciation has had a limited but increasing impact on consumer prices in mexico, where annual inflation ended september at 2.97%, below the central bank<u+2019>s 3% target for a 16th consecutive month. subindexes of core goods such as those affected by currency weakness, however, were up nearly 4%. most board members agreed that the weaker peso, and the possibility of further depreciation, pose an inflation threat. the main external risk in the near term is the u.s. presidential election, and the negative implications for the mexican economy that a victory by donald trump could have on mexico, given his positions on migrant workers and the north american free trade agreement. all central bank board members noted concerns over the u.s. election and its implications for mexico, although the minutes made no mention of the candidates. the use of the widely traded peso by investors as a hedge against other emerging market exposure, the prospects of the u.s. federal reserve raising interest rates, and oil prices were also noted as causes of possible further peso losses. the currency has recovered nearly 5% from its all-time low against the u.s. dollar at the end of september, with most of the recent gains attributed to mr. trump losing ground in the polls. central bankers also discussed domestic risks for the peso such as the widening current-account deficit and rising public debt that led standard & poor<u+2019>s and moody<u+2019>s investors service to change mexico<u+2019>s sovereign ratings outlook to negative from stable. they agreed the outlook for economic growth had deteriorated. several were concerned about sluggish exports, and declining business and consumer confidence, while others noted the economy was expanding in the third quarter after a 0.2% contraction in the second with consumption still robust. others said the decline in manufactured exports appeared to have halted. in local radio interviews following the september meeting, bank of mexico gov. agust<u+00ed>n carstens said the rate increases seek to confront ahead of time the inflation pressures stemming from a weaker peso and other causes. <u+201c>if we let inflation get away, interest rates are going to be much higher, and credit conditions more precarious,<u+201d> he said. write to anthony harrup at anthony.harrup@wsj.com
bank of mexico stresses inflation risk in raising rates  - wsj
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