Mexico central bank watching weak peso's impact on inflation

September 15, 2016 10:58 PM EDT

Chilean coins of 100 pesos are seen next to banknotes of 1000, 5000, 10,000 and 20,000 pesos in this picture illustration, August 16, 2016. REUTERS/Rodrigo Garrido/Illustration

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MEXICO CITY (Reuters) - Mexico's central bank will pay close attention to inflationary pressures stemming from the weak peso while deciding monetary policy, deputy governor Manuel Sanchez said on Thursday.

The upside risks dominated the outlook for inflation, and inflationary pressures arising from the peso's weakness posed the biggest concern, Sanchez said in a speech published on the central bank website.

Mexico's annual inflation rate quickened to 2.73 percent in August, its highest level since February, but remained below the central bank's target despite the peso's slide.

"Going forward, the implications of exchange-rate developments will remain an important input in monetary policy decisions," Sanchez added.

He emphasized that the bank does not target a specific exchange rate and therefore will not "react" if the peso hits a certain level.

Mexico's peso closed at a record low of 19.3635 per dollar on Thursday, having lost more than 5 percent since early July, hurt by concerns U.S. Republican Presidential hopeful Donald Trump could win after polls showed him gaining.

Trump has proposed building a wall across the U.S.-Mexico border and making Mexico pay for it, to prevent drug running and illegal immigration.

(Reporting by Alexandra Alper; Editing by Simon Cameron-Moore)

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