Bank of Mexico's Heath signals extended rate pause

Sept. 2 (Reuters) - Bank of Mexico Deputy Governor Jonathan Heath said the central bank should not cut interest rates again in the short term and suggested any further easing may be about a year away, underscoring policymakers' caution even as inflation nears target.

"I think where we are now, it is appropriate to stop," Heath said in an interview released on Wednesday as part of bank Banorte's podcast.

He said Banxico could consider lowering rates again only if inflation continues to converge toward the central bank's 3% target and that improvement is backed by core inflation.

"If we get inflation that is supported by core inflation very close to 3%, that would allow us later on ... to think about perhaps lowering the rate a little more," Heath said. "From here, perhaps in a year, I don't know exactly."

His comments put the timing of any renewed easing into clearer focus after Banxico's recent disinflation progress, which Heath said ranks among Mexico's best inflation readings since before the pandemic.

But he warned it was too soon to declare victory because the drop in headline inflation has been driven mainly by non-core components, which are volatile and less influenced by monetary policy.

Heath said sticky services inflation remains the main upside risk and added that medium- and long-term inflation expectations are still not fully aligned with Banxico's 3% target.

He also said the central bank could be forced to revisit its stance if inflation rises again, progress stalls or external conditions - including moves by the U.S. Federal Reserve - complicate the outlook.