Jonathan Heath advocates keeping interest rates high for longer

“We are always going to be looking at the monetary stance in two aspects: in absolute terms, which is what we call the real ex-ante rate, and in relative terms, which is this rate differential (…) We are really charging since breaking the persistence of inflation in services,” said the deputy governor in the webinar “Inflation Perspectives and Monetary Policy” organized by Invex.

“We have to maintain, for my taste, at a relatively high level for a little longer until we are sure that we are already breaking this resistance in service prices,” he added.

Heath’s concern is that inflation in services is above 5% annually.

The economist said that even though the Federal Reserve makes rate cuts of 50 basis points, as it happened last month Banco de México will not follow that movement since the central bank has room not to go down by the same magnitude.

Challenges in employment

The deputy governor of Banxico added that another concern for inflation, especially that of services, is the double-digit salary increase that the federal government seeks in the following years.

“In the labor market we see an unemployment gap that is still quite wide; apparently we are beginning to see the first signs that this in job creation is beginning to slow down,” he added.