But he warned that the possibility of tariffs being implemented on US imports from Mexico has added uncertainty to the forecasts. In late November, President-elect Donald Trump promised to apply them to Canada, Mexico and China.
“If Trump does not announce some major disruption on January 20, if the inflation projections we have are in line with what has been observed (or even better) and if we do not face some unanticipated shock, it is possible that the discussion prior to the decision of February is between reducing the reference rate between 25 and 50 basis points,” he told Reuters in response to an express query about the next decision.
“However, even if the discussion occurs, it does not mean that a larger adjustment would be a fact, since the market’s inflation expectations at that time, the economic outlook, the outlook for the rating agencies and the detailed study on the persistence of inflation in services,” the official added in an email on Monday afternoon.
The general inflation of the second largest economy in Latin America stood at 4.44% at an annual rate in the first fifteen days of December and although it has been declining, it is still above the Bank of Mexico’s goal of 3%. The bank expects the indicator to close the fourth quarter of 2024 at 4.6% and reach the target until the third quarter of 2026.
Heath opined that the board’s next decision on February 6 may not be unanimous, arguing that there are differences of opinion among the members of the governing board about the gradualness and prudence necessary to meet the inflation objective in the projected horizon and see “completely out of the question” a cut of more than 50 points.
The deputy governor, a 70-year-old doctor in economics, said that with the information available, a reference rate forecast of between 8% and 8.5% at the end of 2025 is “reasonable,” but he warned that many things could happen and influence that. level throughout the eight monetary policy decisions that are on the agenda.
Asked about the bank’s forecast on the continuation of the “slackness” of economic activity in 2025 and the convenience of still having such a restrictive monetary policy – with a rate that was at the historical maximum of 11.25% until February of this year – Heath stated that he will continue to do so in search of price stability in the country.
The central bank, also known as Banxico, expects the Gross Domestic Product to expand 1.2% in 2025 compared to an estimated 1.8% projected for 2024.
“We will maintain a sufficiently restrictive stance for as long as necessary to meet our 3% inflation goal. The best contribution that monetary policy can make to economic development and growth is precisely to foster an environment of price stability , conducive to maintaining interest rates of all terms at the lowest possible levels in the face of lower inflation expectations,” he emphasized.
Heath attributed the expected sluggishness to the caution of the private sector in its investment decisions in the face of an uncertain and high-risk environment, and a fiscal policy with little room for the need to reduce its deficit.
“However, to the extent that sluggishness persists, it is more likely that we will reach our inflation goal within the estimated times. This will mean that we will continue lowering the reference rate until we reach a neutral stance,” he said.
By 2026, the official said that, if Mexico does not face unanticipated shocks or “negative surprises”, the inflation rate should be around 3%; a neutral monetary stance and an economy in clear expansion.
