Mexico's central bank board split over future rate cuts, minutes show

MEXICO CITY: Mexico's central bank board members were divided over whether their "pause" in rate cuts decided at the last meeting should be considered the end of a cycle of relaxing monetary policy, minutes of the meeting published on Thursday showed.

At its last monetary policy meeting on Nov. 12, Banxico unexpectedly kept its benchmark interest rate unchanged at 4.25% after more than 16 months of consecutive cuts, citing the need for a pause to weigh inflationary pressures.

"Some members mentioned that this pause should not be considered as the end of the monetary relaxation cycle," the minutes said.

The minutes appeared to show that two of the board's five members were most in favor of the pause being temporary.

Board member Jonathan Heath, the only member to vote against the pause, said the bank should not overreact to inflation being temporarily above the target rate.

He said an even lower rate environment was needed to aid the recovery, given the difficulty of fiscal stimulus in Mexico, the minutes showed.

Most of the board members noted that the economic recovery from the crisis will be "gradual and prolonged," and highlighted an environment of uncertainty and downside risks, especially from a fresh surge in coronavirus cases.

Most board members noted that consumption, investment and imports continued to show a lackluster performance, and emphasized wide slack conditions foreseen on the horizon.

Some bank members also highlighted the possibility that Mexico's state-run oil giant Pemex may need additional financing, and that the heavily indebted company could pose a risk to Mexico's sovereign credit rating.