Rates will remain unchanged for longer, Heath predicts

Washington. The deputy governor of the Bank of Mexico (BdeM) Jonathan Heath said that rates are likely to remain unchanged for longer than anticipated by the market, which would leave the reference rate at 11 percent in May, while the decision of June would depend on macroeconomic data.

Last month, BdeM decided in a divided manner to lower its reference interest rate by 25 basis points, to 11 percent, in the first adjustment since it began a monetary tightening cycle in mid-2021, but the door to more monetary cuts in the short term seems to have closed.

“We are not going to discuss the possibility of a cut in May,” Heath said this Friday in statements to Reuters on the sidelines of the spring meetings of the International Monetary Fund and the World Bank, suggesting the possibility of two to four rate cuts this year depending on the evolution of the economy.

The official stressed the importance of waiting until inflation in the service sector in Mexico shows a clear downward trajectory, and pointed out that it would be necessary for the entity to meet inflation objectives to cut rates.

Mexico’s headline inflation has accelerated after bottoming out at 4.26 percent in October, above the Bank of Mexico’s target of one point above or below 3 percent.

“Inflation is stagnant, so we definitely need to be more persistent in our policy terms and try to break this kind of inertia that we’re seeing now,” Heath said.

He explained that the monetary authority’s decision to lower the rate in March was more of “an adjustment” and not necessarily the beginning of a cycle of cuts, adding that the board was “scared” of cutting rates prematurely and prefers to be cautious. and wait for inflation to go down first.

Regarding the peso, the official indicated that it will probably go to a “more sustainable rate”, close to 17 units per dollar, and noted that the 16.3 units that it has recently noted seemed too much and that “it is good that it slows down a little “.

Furthermore, he clarified that the fluctuation in the value of the Mexican currency is more linked to global events than to local factors.

Heath also said that the elections in the United States could affect Mexico, particularly if Republican Donald Trump defeats current President Joe Biden, since a victory for the former president could put private investment in the country at risk or complicate the renegotiation of the agreement. of free trade between both nations and Canada.