Mexico’s central bank not about to ‘decouple’ from Fed on rates, board member says

The Mexican central bank is “not ready yet to decouple” from the U.S. Federal Reserve, and to do so prematurely could weaken the peso currency, Bank of Mexico board member Jonathan Heath said in a podcast published on Wednesday.

“I don’t see (decoupling) around the corner, not at all,” Heath said in a podcast interview hosted by Banorte, a Mexican bank.

“It’s very important that in the short term, we continue to move more or less in line with the Fed … (decoupling) could see much more volatility, we could even see … the Mexican peso begin to depreciate,” he added.

Analysts have been debating when the Mexican central bank, known as Banxico, will end its current interest rate hiking cycle.

Last week, fellow Banxico board member Galia Borja said that rate-hike “synchronization” with the Fed was conditional.

Heath also reiterated that more rate hikes are needed to control inflation, suggesting the Mexican central bank will raise borrowing costs again at its next meeting in December.

Mexico’s benchmark interest rate is currently at 10%.

Heath said Mexico’s annual core inflation should peak by the end of the year, forecasting it would reach 8.6%-8.7% in November.

Core inflation, which strips out some volatile food and energy prices, stood at 8.42% in October.

He also predicted core inflation could be around 4% by the end of 2023, assuming there are no unforeseen shocks.

“When we have inflation under control, we can then think about and analyze the cyclical implications of (growth in) the economy,” he said.

Heath noted that Banxico’s monetary policy stance only became restrictive in September, even though the current rate-hike cycle began in mid-2021.

“The first four 25-basis-point hikes didn’t really do anything in terms of moving the monetary stance,” he said.