Bank of Mexico rate cut sends wrong message, says deputy governor Heath
TLT•Deputy Governor Jonathan Heath said the Bank of Mexico’s 25-basis-point rate cut to 6.25% sends the wrong message as inflation rises. Annual inflation accelerated to 3.75% in October from 3.45% in September.
1. Heath criticizes rate cut
Heath said the Bank of Mexico’s recent rate cut confuses markets and suggests inflation has made clear progress when its trend is upward. He voted to keep the benchmark rate unchanged; the board voted 3-2 to cut it by 25 basis points to 6.25%.
2. Inflation and rate outlook
Annual headline inflation rose to 3.75% in October from 3.45% in September, while the bank targets 3%, plus or minus one percentage point. Heath said the inflation risks are skewed upward and that the bank’s guidance limits its room to raise rates if inflation keeps rising and the U.S. Federal Reserve keeps tightening. He said a decline in the rate differential below 200 basis points would be dangerous and irresponsible.
