(Adds central bank comments on peso, economist comment)
MEXICO CITY, Aug 12 (Reuters) - Mexico’s central bank revised down its 2015 economic growth outlook on Wednesday, but signaled policymakers would have to adjust interest rates in a “timely” fashion to protect the tumbling peso from further volatility.
In its quarterly inflation report, the bank revised its growth target for this year to between 1.7 and 2.5 percent, from 2 to 3 percent in its last report after weaker-than-expected exports and a slump in domestic oil output.
Central bank Governor Agustin Carstens warned that higher borrowing costs could dampen economic growth, but he said policymakers were ready to raise interest rates “in a timely manner” in order to contain a big slump in the peso.
“What we need to watch is precisely that this exchange rate movement does not have a significant impact on inflation or over the process of price formation,” Carstens said.
The peso has been hammered on concerns that an interest rate hike by the U.S. Federal Reserve will drive investors away from emerging markets.
Late last month, Mexico’s currency commission bolstered its intervention programs in an effort to defend the peso and the central bank warned that it could raise interest rates at any time if needed to keep inflation around its 3 percent target.
Carstens said the stronger currency intervention program had been adequate to brake the peso’s depreciation. The peso hit a string of record lows in July but it has traded a bit stronger and has not posted any fresh lows since dollar sales increased.
The bank held steady its growth forecast of 2.5 to 3.5 percent for 2016, saying that a weaker exchange rate would help factories increase exports.
Alexis Milo, an economist at Deutsche Bank in Mexico, said in a note that the bank’s emphasis on growth pared with less concern about the peso slump suggested that policymakers are unlikely to hike before the Fed.
It also said it expects inflation to hold slightly below its 3 percent target for the rest of 2015 and noted limited pressures from the weaker currency on prices.
Mexico’s annual inflation rate dropped in July to touch a record-low for a third consecutive month.
The bank also said it sees growth of around 0.3 percent in the second quarter of the year compared with the prior three- month period, slackening from the first quarter. (Reporting by Jean Luis Arce, Alexandra Alper and Michael O‘Boyle; Editing by Alan Crosby and Grant McCool)