Exclusive-Banxicos rate hike cycle almost over, seen ending at 11.25%-11.75%, says deputy governor

By Anthony Esposito and Noe Torres

MEXICO CITY (Reuters) – The Bank of Mexicos monetary tightening cycle is nearing its end and could see nominal interest rates top out between 11.25% and 11.75%, at which point rates would be kept steady to allow them to take effect, deputy bank governor Jonathan Heath said.

Banxico, as the Mexican central bank is known, has raised its benchmark interest rate by 700 basis points since its rate-hiking cycle started in June 2021, as inflation surged far beyond its target of 3%, plus or minus 1 percentage point.

“Right now I would say that I see the terminal rate very near 11.50%, between 11.25% and 11.75% … but a lot can change,” Heath said in an interview with Reuters late on Wednesday.

At last week‘s policy meeting, Banxico’s five-member governing board unanimously voted to increase the key rate by 50 basis points to 11.00%, above market forecasts for a quarter of a percentage point hike, citing a complex inflation scenario and suggesting they could enact a smaller hike at the upcoming March meeting.

That forward guidance, however, “is not a commitment and will always be data-dependent,” Heath said, underscoring his views did not represent the positions of the banks other board members.

Initially Heath, who is regarded as one board‘s most hawkish members, expected to vote for a 25 basis points hike at the last meeting, until incoming data painted a “less benign” picture for inflation. He added that new information could sway Banxico’s board members one way or another before the March 30 meeting.

Heath said that January inflation data, which showed the annual headline figure accelerating to 7.91% and annual core inflation standing at 8.45%, highlighted a concerning jump in price pressures in the services sector.

“Frontloading” with a half percentage point hike sought to keep that jump in services inflation to a one-off situation, said Heath, noting he saw price pressures starting to transition to more local and domestic factors from the predominantly global factors seen in recent years.

(Reporting by Anthony Esposito and Noe Torres; Editing by David Holmes)