Bank Of Mexico's Deputy Governor Wants Inflation Reversal Before More Major Rate Cuts

• Mexico's central bank should avoid cutting its benchmark interest rate by 50 basis points until inflation resumes a clear downward trajectory, Deputy Governor Jonathan Heath noted, adding his view is in the minority among the five-member board.
• Despite concerns over inflation, Heath believes the central bank will vote at the end of June to lower the key interest rate by that magnitude in what would be its fourth consecutive cut of that size, a decision he said he is sceptical of.
• "I believe it is time to pause and not continue lowering the rate at the magnitude we have done in recent decisions, in order to give ourselves time to better evaluate the evolution of the data," Heath said.
• Debate over any rate cut underscores a key challenge confronting Mexico's central bank as it seeks to ease rising inflation while also stimulating Mexico's sluggish economy.
• Headline inflation in Mexico accelerated to 4.42% in May, exceeding the upper end of the central bank's target range of 3% plus or minus a percentage point. Core inflation, which excludes volatile items like food and oil, rose to 4.06%, its highest level in almost a year.
• Still, Banxico, as the central bank is known, currently forecasts inflation will fall in the third quarter before converging to its target by the third quarter of 2026. In May, Banxico cut its interest rate to 8.5% and reiterated it could make a further reduction depending on inflation. The bank also emphasised that a slowdown in the economy is expected and lowered its GDP growth forecast to 0.1% for 2025 from a previous 0.6% estimate.

(Source: Reuters)