Background on Omar Mejía Castelazo and His Role
Omar Mejía Castelazo serves as the sub-governor of Banco de México (Banxico), playing a crucial role in shaping the country’s monetary policy. As one of the key decision-makers at Banxico, his statements carry significant weight in understanding the bank’s approach to managing inflation and interest rates.
Banxico’s Focus: Inflation Over Neutral Tier Rate
Mejía emphasized that Banxico’s primary objective is controlling inflation, which stems from the prevailing economic environment and its components. He clarified that the bank’s aim is not to restrict or maintain neutrality in the reference rate but rather to manage inflation effectively.
Current Economic Conditions
Mejía pointed out that there is currently a negative product gap that will continue to widen, even with an anticipated economic recovery. He also mentioned that the stable Mexican currency, which has appreciated recently, along with expectations of further rate cuts by the Federal Reserve (Fed), provide room for Banxico to continue its gradual rate-cutting cycle.
Understanding the Neutral Rate Range
Banxico has estimated the neutral rate range to be between 1.8% and 3.6%, with a midpoint of 2.7%. When the nominal rate was 11.25% and 12-month inflation expectations were at 4.34%, the real ex ante rate was 6.91%, which was 331 basis points above the neutrality ceiling. This gap indicated the level of monetary restriction.
However, after 11 rate cuts from March 2024 to September 2025, this restrictive space has significantly narrowed. With a nominal rate of 7.50% and 12-month inflation expectations at 3.79%, the real ex ante rate dropped to 3.71%, which is 17 basis points above the neutrality ceiling.
Inflation Dynamics and Components
Mejía highlighted that the expansion of accommodative conditions forecasted for the future suggests that inflation convergence effects may persist. He noted that current inflation is near its historical averages and faces risks similar to those it has encountered previously.
Services Inflation Resilience
Mejía addressed the resilience of services inflation, which has fluctuated between 4.35% and 4.62% for six months. He mentioned that some components within services inflation have seen reductions, particularly in housing, which accounts for around 46% of the total services.
In contrast, other sectors have shown increases this year, including food services, affected by rising prices of poultry products like beef, pork, and chicken.
Mejía noted that poultry prices have started to show signs of moderation, and this trend is expected to continue in upcoming readings.
Determinants of Inflation: Dollar, Trade Uncertainty, and Mexican Peso
Mejía explained that the trajectory of inflation determinants suggests that inflation will likely decrease in upcoming quarters. He pointed to the Mexican peso’s stability amidst trade uncertainty, noting that the currency has appreciated in recent months.
He mentioned that initial assessments considered the imposition of tariffs as a risk for peso depreciation with upward inflation effects and a downside risk to economic activity. However, despite tariff impositions, the national currency has shown stability due to Mexico’s preferential export access under the USMCA and the generally weak US dollar.
Mejía acknowledged that trade uncertainty has contributed to the observed economic weakness in Mexico throughout the year, materializing the downside risk for inflation associated with current uncertainty.
Fed’s Clarity and Its Impact
Mejía emphasized that greater clarity in the Fed’s rate trajectory provides an additional margin. He distinguished the current uncertainty from that faced during the recent inflation episode, where upside risks to inflation were high and addressed promptly. In the current context, uncertainty surrounds trade policy with Mexico’s primary trading partner.
