Deputy Governor of Banxico opens the door to key rate adjustment in the first quarter of 2024

The deputy governor of mexican central bankBanxico, Jonathan Heath said on Monday that if inflation continues to decline in the country, especially core inflation, there could be an adjustment to the key interest rate for February or March.

The central bank has said several times in recent months that to achieve the orderly and sustained convergence of inflation to the 3% target it will be necessary to maintain its reference rate at the historical maximum of 11.25% for a while.

In an interview with Imagen Radio, Heath He stated that, if they occur, the first cuts to the key rate would be “a fine adjustment” and that it would be cut “once or twice“, but not consecutively, but “gradually” and “very cautiously”.

The deputy governor reiterated, however, that Banxico wants to maintain the current restrictive monetary stance “for a long time” and detailed that inflation will still face risks “so big” next year.

In addition, he pointed out that core inflation, considered a better parameter to measure the trajectory of prices because it eliminates highly volatile products, has to fall further to ensure that the general index continues to decline. “That is the main challenge for 2024“, I note.

Among the inflationary pressures that still persist, the deputy governor pointed out the excess aggregate demand and the increases in the minimum wage agreed upon during the mandate of President Andrés Manuel López Obrador, which began in 2018 and ends in 2024.

In 2023, the minimum wage increased by 20% year-on-year to about $355 per month, in line with double-digit increases in the first four years of López Obrador’s term, who has anticipated that the increase this year would be “considerable.”

Finally, Heath estimated that the Mexican economy could end up growing 3.4% or 3.5% this year, a little above the International Monetary Fund’s forecast from early November, of 3.2%.