Bank of Mexico's Heath doubts revised inflation forecast

MEXICO CITY, Feb 11 (Reuters) - Bank ‌of Mexico Deputy Jonathan ​Heath ​believes Mexican inflation is unlikely to fall to the bank's 3% target in the second quarter of next year, as the bank officially forecast last week, ‌saying the new projection is still too optimistic.

Last Thursday, the Bank of Mexico ⁠held its benchmark interest rate at 7.0% after 12 consecutive interest rate cuts, while forecasting inflation will hit the ‌bank's 3% target in the ‌second quarter of 2027, a notable extension from its previous forecast of the third quarter this year.

In a podcast interview with financial group Banorte published on Wednesday, Heath, who in ​November said the bank had a "credibility crisis" concerning its inflation forecasts, warned the central bank may be relying on overly optimistic inflation projections, underestimating structural inflation pressures, and risking ⁠premature rate cuts that could damage its credibility.

"“I have consistently voted since the start of this cycle that we should be ​more cautious and move more slowly in cutting rates, because it’s not clear that inflation is close to its targets — nor even that it ​will meet them by the second quarter of 2027," ‌Heath said.

"Basically, almost nobody believes that not only are we not going to meet the goal for the second quarter of 2027, but not ⁠even in the next four or five or ten years."

Banxico, as the central bank is known, said last Thursday it would evaluate additional adjustments to the benchmark interest rate.

According to Heath, the bank's message is ⁠that if inflation evolves in line with what the board anticipates, then the bank could cut its rate "as ​early as March."

Heath, however, said there appears to him to be a disconnect between the updated macroeconomic projections and the suggestion that monetary easing could soon resume.

“I would say it was completely naïve to think ‌we could bring inflation down to 3% by mid-year," Heath said, adding that core inflation in particular "needs to show a clear, clear downward trend ‌before we begin easing further."

Official data published on Monday showed both headline and core inflation, which strips ⁠out more volatile prices, spiking in ‌January. The closely watched core ​index rose to 4.52% - up from 4.33% in December and its highest level since March 2024.

(Reporting by Mexico City Newsroom; Writing by Brendan O'Boyle; Editing by ‌Emily Green)

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