Inflationary environment will allow discussion of rate adjustment: BdeM minutes

Mexico City. The Bank of Mexico (BdeM) expects that the country’s inflationary environment could allow for discussions of adjustments to the reference interest rate, according to the minutes of the entity’s August monetary policy decision on Thursday.

The BdeM cut its benchmark interest rate by 25 basis points to 10.75 percent in a split decision by its board announced on Aug. 8.

Two members of the five-person governing board of the Bank of Mexico called the August cut in the benchmark interest rate premature and said it could undermine the bank’s credibility, the minutes showed.

According to the data, the Council acknowledged that although the inflation outlook continues to call for a restrictive stance of monetary policy, its evolution implies that a reduction in the level of monetary restriction is appropriate.

Deputy Governors Jonathan Heath and Irene Espinosa, however, voted to keep the rate stable at 11.00 percent, while Governor Victoria Rodriguez and Deputy Governors Galia Borja and Omar Mejia voted to cut the rate by a quarter of a percentage point.

“Given the circumstances and risks described, a cut in the reference rate would undermine the credibility of this central institution in its commitment to the constitutional mandate of maintaining price stability,” Espinosa wrote in his dissenting opinion, published in the minutes.

Consumer prices fell 0.03 percent in the first half of August, according to data published Thursday by the National Institute of Statistics and Geography (Inegi), compared to expectations of a 0.12 percent increase predicted by economists.

This brought the annual headline inflation rate to 5.16 percent, still above the central bank’s target range (2-4 percent).