MEXICO CITY: Mexico bolstered its intervention program to defend the peso on Thursday as the central bank warned that the currency could slump further after suffering a string of record lows.
The Banco de Mexico left its key rate at 3.00 percent, as expected by all 24 analysts surveyed by Reuters last week. Despite the peso's losses, the central bank said that the inflation outlook had improved in the short term. But it also noted that the economic outlook had worsened.
Mexico's peso wiped out losses after the country's currency commission, made up of the finance ministry and the central bank, announced they would raise daily dollar auctions to $200 million from $52 million to support the peso.
The commission issued its statement as the central bank said it would hold rates steady. Central bankers said that worries about the US Federal Reserve could hammer the peso. The currency hit a fresh record low earlier on Thursday.
Fears of further peso volatility and investor outflows pushed analysts to forecast a 25 basis point hike in Mexico on Sept. 21 if the Fed hikes at its meeting earlier that month, in a poll by Reuters last week.
The peso has tumbled over 25 percent since July 2014, but has not stoked widespread price pressures.
Annual inflation touched a new record low of 2.76 percent in early July.
The central bank forecast that inflation will remain below its 3 percent target for the rest of the year because of sluggish growth while saying there was no sign that currency weakness had spurred widespread inflation pressure.
Policymakers said there were significant risks for a faster pace of price gains.
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