Banxico’s Deputy Governor Mejia advocates for gradual cuts – MNI

Banxico’s Deputy Governor Omar Mejia Castelazo said that the central bank needs to reduce borrowing costs as higher rates could cause distortions in the markets and the economy, he said in an interview with Larissa Garcia of Market News International (MNI).

Mejia said that “it is necessary to adjust the level of restriction” and added the central bank would lower rates gradually as “the ongoing disinflationary process reduces the costs of restrictive monetary policy for the economy.”

Even though Banxico’s mandate is fixed on price stability, Mejia shows signs of concern for economic activity. He said the “risk of weak activity is already materializing. We've had three quarters with growth below projections. I had already seen this coming, which is why my vote was dissenting to lower interest rates in June.”

In the last monetary policy decision, Banxico reduced the main reference rates by 25 basis points (bps) on a 3-2 split vote decision. Governor Rodriguez and Deputy Governors Galia Borja and Omar Mejia favored a cut, contrary to Deputy Governors Irene Espinosa and Jonathan Heath.

Most bank analysts estimate Banxico will lower interest rates by at least 50 basis points (bps) for the remainder of 2024.

When asked about the upcoming September meeting, he commented the bank is considering several factors, while acknowledging that services inflation remains stickier than expected. Mehia added that “Some components in services inflation have shown higher persistence due to the lagged effects of pandemic-related shocks.”