(Bloomberg) --
Mexico has one of the highest real interest rates in the world and it would be “understandable” to expect more cuts by the central bank, Finance Minister Arturo Herrera said in an interview.
Speaking in New York, Herrera said he'll be present at a meeting of the central bank board on Wednesday ahead of a rate decision the following day, where he is not allowed to cast a vote. Herrera didn't call for a rate cut himself and said the government respects the autonomy of the central bank.
Inflation in Mexico has slowed dramatically in recent months, with prices gaining 2.99% annually in early September, leaving the country with one of the highest borrowing costs in real terms among emerging markets as the key rate stands at 8%. The central bank targets inflation at 3%, plus or minus one percentage point. Latin America's second-largest economy also narrowly dodged recession in the second quarter.
Read More: Mexico's Hawkish Central Bank Gets Swamped With Rate-Cut Signals
Herrera was responding to a question about whether he agreed with President Andres Manuel Lopez Obrador, who in July told Bloomberg News that he'd like to see the central bank cut rates.
“It would be understandable to expect that,” Herrera said in response. “We respect the autonomy of the central bank. I'm a member of the board. I don't vote, but I have a voice so I have to be particularly careful. We are meeting tomorrow.”
A majority of economists in a Bloomberg survey see the central bank cutting rates by a quarter point to 7.75% this week, after lowering them for the first time in five years last month. Banxico is expected to deliver at least two additional quarter-point reductions before the end of the year, Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., wrote in a research note Tuesday.
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In the interview, Herrera also told Bloomberg that state-owned oil company Petroleos Mexicanos has yet to complete a massive debt refinancing plan. It's already sold $7.5 billion of bonds maturing in 7, 10 and 30 years to refinance short-term debt. The Mexican government had given Pemex $5 billion to buy back short-term debt as part of the deal.
“We need to complete the transaction,” Herrera said. “We are two-thirds of the way there. We have one last piece that will take 10 more days,” he said, without elaborating.
He said Pemex is about to launch 15 quasi public-private partnership contracts, and that number will eventually expand. He said those contracts will be a key test to determining future partnerships with the private sector.
Herrera declined to comment when asked about oil hedges for 2020. Mexico usually locks in oil prices as a shield against price declines through a series of financial deals with banks.
To contact the reporters on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net;Nacha Cattan in Mexico City at ncattan@bloomberg.net
To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Robert Jameson
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