Banxico Deputy Governor Jonathan Heath, who voted against last week's cut to 6.25%, said the move confuses the message on inflation after October data showed prices accelerating to 3.75%.
Bank of Mexico Deputy Governor Jonathan Heath has publicly criticised the central bank's decision to cut interest rates, saying it "confuses and sends the wrong message" at a moment when inflation is heading the wrong way.
The five-member board voted 3–2 last week to cut the benchmark rate by 25 basis points to 6.25%, with Heath voting to hold. Days after the decision, official data showed annual headline inflation accelerated to 3.75% in October from 3.45% in September. Banxico targets inflation of 3%, plus or minus one percentage point.
"The balance of risks for inflation is heavily skewed to the upside, and this misplaced cut only further hurts the chances of seeing inflation converge to its 3% target by the end of next year," Heath told Reuters in a written response on Wednesday, speaking in a personal capacity. He warned that if the US Federal Reserve raises rates at its next two meetings, the gap between Mexican and US rates would fall to 175 basis points, and that putting the differential below 200 points would be "dangerous and irresponsible". The Fed held rates at 3.75% to 4.00% in October after a 25-point rise in September, and markets expect another hike in December.
Heath's criticism is on the record — his words come from a written response to Reuters, given in a personal capacity, and the vote split, the rate and the inflation figures are all confirmed by the same reporting and official data. What is contested is the judgement, not the facts: the board's majority signalled a pause ahead, saying holding the rate at the new level for an extended period would support convergence to target. Heath's term on the board ends in December, so this is effectively his parting shot — and his own summary of the problem: "the biggest pending issue we have is understanding in depth why we have never managed to make inflation converge to 3% and stay there.
The argument matters because Banxico is now moving in the opposite direction from the Fed, and the peso has been under pressure as the gap narrows, fuelling fears that a smaller yield advantage will reduce the appeal of "carry trade" operations in which investors borrow cheaper dollars to invest in higher-yielding pesos. If the Fed raises rates in December as markets expect, the board will have to decide whether Heath's warning was right — and whether the room to raise rates again, which he says the forward guidance has limited, is still there.