Mexico’s Central Bank Interest Rate Discussion

MEXICO CITY (Reuters) – Mexico’s central bank should refrain from cutting its benchmark interest rate by 50 basis points until inflation shows a clear downward trend, Deputy Governor Jonathan Heath stated in an interview with Reuters, noting that his perspective is in the minority among the five-member board.

Despite concerns regarding inflation, Heath expressed belief that the central bank would vote at the end of June for a cut of that scale, marking its fourth consecutive reduction of this size—a decision he expressed skepticism about.

> “I believe it is time to pause and not continue lowering the rate at the magnitude we have done in recent decisions, in order to give ourselves time to better evaluate the evolution of the data,” Heath said in response to questions.

The debate over a potential rate cut highlights a significant challenge for Mexico’s central bank, as it attempts to balance rising inflation with the need to stimulate a sluggish economy.

As of May, headline inflation in Mexico rose to 4.42%, surpassing the upper limit of the central bank’s target range of 3% plus or minus one percentage point. Core inflation, which excludes some volatile items such as certain foods and oil, reached 4.06%, its highest in nearly a year.

Banxico, the central bank, projects that inflation will decline in the third quarter and hopes to reach its target by Q3 of 2026. Heath remarked that a majority of Banxico’s board members believe the recent inflation increase is a temporary phenomenon.

> “While I am a bit skeptical that inflation will behave as the official projection anticipates, it is clear to me that my opinion is in the minority,” Heath noted, advocating for a “more cautious, more prudent” approach until inflation aligns more closely with the 3% target.

In May, Banxico lowered its interest rate to 8.5% and reiterated the possibility of further reductions based on inflation trends. The bank has also lowered its GDP growth forecast for 2025 to 0.1% from a previous estimate of 0.6%.

A survey of a dozen economists by Reuters indicates expectations for Banxico to proceed with a 50-basis-point cut at its next meeting on June 26.