Debate Over Interest Rate Cut Sparks Concerns at Bank of Mexico

Two members of Mexico's central bank, Banxico, argued that the recent cut in the benchmark interest rate might jeopardize the bank's credibility. The decision, made despite expectations of rising prices, has drawn mixed reactions from the board, signaling a cautious approach to monetary policy.

Two members of Mexico's central bank governing board opposed the August cut of the benchmark interest rate, citing concerns over credibility and premature action, according to minutes from the Bank of Mexico's last monetary policy meeting.

In a split decision, Banxico cut its benchmark rate by 25 basis points to 10.75%, even though it anticipated higher prices ahead. The minutes revealed that while a majority viewed a reduction in restrictive measures as appropriate, Deputies Jonathan Heath and Irene Espinosa dissented, favoring a steady rate at 11.00%.

Governor Irene Espinosa contended in her dissent that a rate cut under current conditions could undermine the bank's credibility in maintaining price stability. However, consumer prices fell 0.03% in early August, contrary to economists' predictions of a 0.12% rise, bringing annual inflation down to 5.16%, still above the target range.

(With inputs from agencies.)