Mexico to Look at Rate Cuts After April, Central Banker Says

(Bloomberg) -- Mexico's central bank is likely to wait until after April to consider further interest rate cuts, Deputy Governor Jonathan Heath said in an interview published Wednesday.

Heath, who is on the dovish wing of the five-member board, pushed unsuccessfully to cut rates by a quarter point to 4% at the bank's last two meetings. Instead, the bank paused a record cycle of 11 straight cuts. Heath's vote would likely be needed for any cut to take place in the first quarter.

At the bank's next meeting on Feb. 11, “I think our discussion will center on whether a window of opportunity reopens to continue with this accommodative cycle, or if we still have to continue with this pause, because inflation is starting to climb again a bit,” Heath told Banorte's Norte Economico podcast.

Heath said the bank is expecting inflation to accelerate in April, which he called “the most dangerous” month, and then slow closer to 3% toward the end of the year. It's possible the slowdown may not be clear, however, “and that window of opportunity might not exist,” he said.

President Andres Manuel Lopez Obrador has declined to inject any significant fiscal stimulus to combat the crisis, saying that a lighter debt load will lead to a faster recovery. That's left the central bank to do most of the heavy lifting by slashing rates.

The bank targets inflation at 3% plus or minus one percentage point. After the economy plummeted around 8.3% last year, Heath said he is “not so worried” about inflation ending “a couple of points above the target.”

Five of six analysts surveyed by Bloomberg see policy makers cutting the key rate by a quarter point to 4% next week. In all, 23 analysts submitted estimates for the bank's last meeting before the Dec. 17 decision.

Heath said the U.S. Federal Reserve's policy shift to target 2% average inflation will help reduce external inflationary pressures on Mexico. “It gives us a more viable window to keep an expansive, accommodative monetary posture to try even on the margins to prop up economic growth,” he said.

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