Jonathan Heath is the deputy governor of Bank of Mexico. He questioned its official forecast and said that the current figures may be too optimistic.
Heath said it was unlikely that the inflation rate in Mexico would fall below the central bank’s target of 3% by the second quarter 2027.
Last Thursday, after 12 successive interest rate reductions, the Bank of Mexico maintained its benchmark rate of 7.0%.
The bank also extended the forecast that had predicted inflation to reach 3% by the third-quarter of this year until the second-quarter of 2027.
Heath stated that the projections may not accurately reflect inflation.
He warned that in a Wednesday podcast with the financial firm Banorte, the central bank could be overly optimistic and not fully accounting for inflation pressures.
This approach, he warned, could result in premature rate reductions and damage the credibility of the institution.
Resurfacing of concerns about credibility
Heath expressed similar concerns when, in November of last year, he stated that the central bank faced a “credibility crises” regarding its inflation forecasts.
In his latest interview, he reiterated the cautious position he took on monetary policies.
Heath stated, “I’ve consistently voted that since the start of this cycle we need to be more careful and take a more gradual approach in reducing rates.”
Sein remarks reveal internal disagreements over the rate of monetary ease following 12 consecutive rates cuts by the bank.
Inflation core increases in January
Data released Monday confirmed the deputy governor’s concerns, indicating that headline inflation and core inflation both increased in January.
The core inflation rate, which excludes the more volatile prices, rose to 4.52% in January.
This was the highest since March 2024, and a rise from 4.33%.
The central bank stopped its ease cycle, and the benchmark rate was maintained at 7.0%.
Policy discussion
Heath’s comments indicate that central bank officials are still debating whether to reduce interest rates despite recent inflation slowdown.
He said that too much reliance on positive inflation predictions could cause policymakers to loosen monetary policy early, undermining the confidence of policymakers in their ability to achieve its goal.
He is expressing the belief that inflation may remain higher than anticipated for a longer period of time than currently expected. This could be especially true if structural forces are stronger than projected.
Heath’s statement reflects the more conservative outlook of the central bank, as the recent inflation figures show renewed pressure on the rate.
The post Mexico Central Bank Official warns that inflation forecast may not be accurate may change as new information is revealed
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