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Mexico

Banxico deputy governor Heath criticizes rate cut as inflation rises

The dissenting vote on Mexico's central bank board signals internal disagreement over monetary policy, which affects borrowing costs and currency markets.

Photo: Raleigh News & Observer

What happened

Bank of Mexico Deputy Governor Jonathan Heath said the central bank's recent interest rate cut sows confusion and sends the wrong message. Raleigh News & Observer+2 The five-member board voted 3-2 to cut the benchmark rate by 25 basis points to 6.25%, with Heath voting to hold. Raleigh News & Observer+2 Heath said the inflation outlook is skewed to the upside, and the cut further hurts the chances of reaching the 3% target by the end of next year. Raleigh News & Observer+1 Heath made the comments in a written response to Reuters on Wednesday, speaking in a personal capacity. Raleigh News & Observer+1

Around it

Annual headline inflation accelerated to 3.75% in October from 3.45% in September, and Banxico targets inflation of 3%, plus or minus one percentage point. Raleigh News & Observer+1 Heath said the Federal Reserve seems primed to keep hiking its key rate, and the Fed raised rates to 4.00%. Raleigh News & Observer+1 The USD/MXN pair has risen about 9.5% since early September to 18.61, which analysts link to diverging US and Mexican monetary policies. equiti.com Banxico Governor Victoria Rodriguez said the surprise cut was a one-time move rather than the start of an extended easing cycle, and that inflation remains within the bank's tolerance range. Bloomberg

What comes next

Heath, whose eight-year board term ends in December, is leaving the central bank's board at that time. Raleigh News & Observer+1

Sources

  1. Raleigh News & ObserverExclusive-Bank of Mexico rate cuts sends wrong message, says deputy governor Heath
  2. equiti.comUSD/MXN rises as diverging central bank policies support the US dollar
  3. monoscoops.comBank of Mexico deputy governor says rate cut 'sends the wrong message' as inflation climbs
  4. PiQMarketsBanxico rate cut sends wrong message, deputy governor Heath says
  5. BloombergBanxico Chief Signals No Rush to Cut Again After Surprise Move

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