By Raul Cortes and Kylie Madry
MEXICO CITY (Reuters) -The Mexican central bank’s benchmark interest rate is at the correct level, and its board does not want to raise it again even in the face of more U.S. rate hikes, the Bank of Mexico’s Jonathan Heath said in an interview published on Wednesday.
Mexico’s central bank has kept the country’s benchmark rate steady since raising it to 11.25% at the end of March, while the U.S. Federal Reserve raised its benchmark overnight interest rate by a quarter of a percentage point last week.
The Fed’s decisions have been “very relevant” to the Mexican central bank’s board, Heath, a board member, said in a podcast interview hosted by Mexican bank Banorte, but now Mexico just has to wait for its current policy rate to work.
Heath said that as global inflationary pressures were starting to let up, Mexico’s central bank was focusing on more local price pressures, which he called the most concerning.
He noted that labor costs could see additional pressure in the face of a tight labor market and a minimum wage increase expected in January.
Heath added that if conditions were to worsen, there could be an “alternative scenario” where the central bank would be required to further tighten monetary policy.
In the best-case scenario, however, the central bank could make a “slight adjustment” downward to the interest rate by the end of the year, he said.
Banxico, as Mexico’s central bank is known, is scheduled to announce its next monetary policy decision on Aug. 10.
A number of challenges lie ahead in Banxico’s battle to rein in inflation to its target of 3%, Heath said.
Core inflation has remained stubborn, he said, and there is a lack of signs that prices of services are coming down.
On the other hand, the strength of the peso, which has appreciated nearly 13% against the dollar so far this year, has helped Mexico.
While Heath said it was important for the exchange rate to be flexible, he noted that factors such as remittances and transactions outside of the country had boosted the peso’s appreciation.
(Reporting by Raul Cortes Fernandez and Kylie Madry; Writing by Brendan O’Boyle; Editing by Sarah Morland and Paul Simao)
