UPDATE 2-Mexican inflation entering 'difficult terrain', central banker says

Anthony Esposito
Updated 2-min read

(Adds detail on wages and monetary policy in paragraphs 4-5)

By Anthony Esposito

MEXICO CITY, April 15 (Reuters) - Bank of Mexico Deputy Governor Jonathan Heath said inflation in Latin America's No. 2 economy, despite having eased, was showing signs of persistence and that difficult terrain lay ahead.

"We are entering the most difficult terrain, in which we must be more enduring and more patient," said Heath, one of the five board members of Banxico, as the Mexican central bank is known, in an El Pais newspaper interview published on Monday.

A strong Mexican economy has played a role in the persistence of high prices, Heath added, noting that a further increase to the minimum wage would begin to push up average wages.

The government of President Andres Manuel Lopez Obrador has sharply raised the minimum wage during his administration. The latest 20% hike took the figure up to 249 Mexican pesos ($14.94) per day.

Heath noted that expansive fiscal policy by the government in the run-up to general elections was complicating Banxico's work in taming inflation this year.

Lopez Obrador's government has looked to finish several flagship projects ahead of presidential elections in June. Ruling party candidate Claudia Sheinbaum is expected to win the vote by a wide margin.

Banxico cut its benchmark interest rate by 25 basis points to 11% in a four-to-one decision by its governing board announced on March 21, marking the first rate reduction since the bank embarked on a tightening cycle in 2021.

Heath said considering the so-called real-ex-ante policy rate, defined as the difference between the nominal interest rate and expected inflation, the recent rate cut "really wasn't reducing the monetary posture to be less restrictive, rather we are maintaining it with this small adjustment."

Despite a restrictive monetary policy stance, Mexico's banking system has remained strong, Heath said, adding that it was unclear if lowering rates could affect global demand for the peso currency.

"Today it is much harder to try to anticipate the peso's trajectory than at any other point in our history," he said. ($1 = 16.6629 Mexican pesos) (Reporting by Anthony Esposito and Ana Isabel Martinez; Writing by Sarah Morland; Editing by Marguerita Choy and Bill Berkrot)