Mexico central bank cuts 2015 growth forecast

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 damp 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.

Mexico's central bank held rates steady at a record-low 3 percent last month, while bolstering its intervention programs in an effort to defend the peso as policymakers warned that the currency could slump further.

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.

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, and an annualized rate of 2 percent, slackening from the January to March period.