Bank of Mexico's Heath wants inflation reversal before more major rate cuts
MEXICO CITY, June 13 (Reuters) - 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 told Reuters, adding his view is in the minority among the five-member board.
Despite concerns over inflation, Heath said he 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 skeptical 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 in a written response to questions from Reuters.
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 some foods 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.
Heath said a majority of Banxico's board members believe the pickup in inflation is a "temporary phenomenon."
"While I am a bit skeptical that inflation will behave as the official projection anticipates, it is clear to me that my opinion is in the minority," he said, adding he supports a "more cautious, more prudent" approach until inflation "clearly resumes a downward trajectory consistent with a convergence towards our 3% target."
In May, Banxico cut its interest rate to 8.5% and reiterated it could make a further reduction depending on inflation. The bank also emphasized 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.
A dozen economists surveyed by Reuters expect Banxico to move forward with a rate cut of 50 basis points at its next meeting on June 26.
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