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UPDATE 2-Bank of Mexico's Mejia eyes rate cut, but cautious on above-target inflation

Reuters
·2-min read

(Updates with additional detail)

MEXICO CITY, March 13 (Reuters) - Bank of Mexico Deputy Governor Omar Mejia argued in a podcast published on Wednesday that it is not premature to consider lowering the bank's benchmark interest rate, though he cautioned that any future cuts should remain restrictive.

The bank's interest rate currently stands at a historic high of 11.25%, and the monetary authority is set to meet later this month.

Mejia, speaking on a podcast by bank Banorte, said that the challenge going forward would be to adjust the key lending rate in a way that is consistent with inflation that is dropping but still above the central bank's target.

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Mexican headline inflation slowed to 4.40% in February, still above the bank's target range of 3%, plus or minus one percentage point.

"We still have a long way to go on this disinflationary path," Mejia said, though he cautioned that challenges, including the stickiness of services inflation, remained.

The Bank of Mexico, also known as Banxico, recently softened its tone on its stance toward the benchmark rate, saying for the first time in February that it will assess "the possibility of adjusting the reference rate" in upcoming meetings.

Previously, the central bank board had said it would need to maintain the rate at 11.25% "for some time" to tame inflation.

Mejia stressed that the balance of risks for inflation is less adverse than before.

The central banker noted that the Mexican economy has shown strength on higher-than-expected domestic spending, but "we must pay attention" to a slowdown at the end of last year, which led Banxico to downwardly revise its activity forecast for 2024.

Extraordinary factors including inflationary shocks caused by the COVID-19 pandemic have dissipated, said Mejia, while current risks are now more "similar to those that the Mexican economy has faced in previous episodes". (Reporting by Kylie Madry and Raul Cortes; Editing by David Alire Garcia and Peter Graff)