Bank of Mexico rate cut sends wrong message, deputy governor Heath says
TLT•Deputy Governor Jonathan Heath said the Bank of Mexico’s 25-basis-point rate cut sends the wrong message as inflation pressures remain tilted upward. The bank voted 3-2 to cut its benchmark rate to 6.25%, while annual inflation rose to 3.75% in October from 3.45% in September.
1. Heath criticizes rate cut
Jonathan Heath said the Bank of Mexico’s recent rate cut sows confusion and suggests inflation has made clear progress when its trend is upward. He voted to keep the benchmark rate unchanged last week, but the five-member board voted 3-2 to cut it by 25 basis points to 6.25%.
2. Inflation risks remain
Annual headline inflation accelerated to 3.75% in October from 3.45% in September, above the bank’s 3% target, which has a one-percentage-point tolerance band. Heath said rising Mexican prices, peso depreciation, improved growth forecasts and expectations for further U.S. Federal Reserve rate hikes all point to inflation risks skewed to the upside.
