Mexico’s central bank split over rate cut as inflation rises

Mexico’s central bank split over rate cut as inflation rises

Bank of Mexico Deputy Governor Jonathan Heath has criticised the central bank’s decision to cut its benchmark interest rate to 6.25 per cent, arguing that the move gave the wrong impression about progress on inflation. Official figures released after the decision showed that annual inflation rose to 3.75 per cent in October from 3.45 per cent in September.

The central bank, known as Banxico, voted 3–2 last week to cut its policy rate by a quarter of a percentage point. Heath voted to keep it at 6.50 per cent. In written comments published by Reuters on Thursday, he said he was speaking in a personal capacity and argued that the risks to inflation were tilted upwards.

Inflation moves further from target
October’s reading remained within Banxico’s tolerance range of 2 to 4 per cent, but it moved further from the bank’s 3 per cent target. The distinction matters for policymakers deciding how quickly to lower borrowing costs. A cut can support demand by making credit cheaper over time, while persistent price pressures can make it harder to bring inflation back to target.

Heath, whose term on the board ends in December, said understanding why inflation has struggled to settle at 3 per cent remains an unresolved issue for the central bank.

US rates add pressure on the peso
The decision also comes as investors weigh the prospect of further US Federal Reserve rate increases. Heath warned that if the Fed raises rates at its next two meetings, the gap between Mexican and US policy rates could narrow to 1.75 percentage points.

A smaller gap reduces the interest-rate advantage of holding peso assets over dollar assets, all else being equal. Reuters reported that the peso had already come under pressure as Mexican and US monetary policy moved in different directions. The next inflation figures and the Fed’s December decision will give investors fresh evidence on both sides of that gap.

NewsHub Finance | Latin America | 13 November 2026