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Mexico’s central bank is very likely to follow the US Federal Reserve’s next interest rate hike, Deputy Governor Jonathan Heath said in an interview.

The bank, known as Banxico, matched the Fed’s last two hikes of 75 basis points, bringing its key interest rate to an all-time high of 8.5% last week. Banxico traditionally emulates the Fed’s rate increases to avoid large amounts of capital leaving the country and weakening the peso.

“The number one indicator that we’re looking at is what the Fed does. I would probably say that if the Fed increases 50, it’s a given we’re going to increase 50,” Heath told Bloomberg News late Thursday. “If the Fed increases 75, we’re going to have a very interesting discussion and my guess -- I can only speak for myself, I can’t speak for everybody else -- is that we’ll probably go for what the Fed does.”

Heath says he will vote to match the Fed if it hikes by 50 or 75 basis points. Banxico started hiking much earlier than the Fed, in June last year, but Heath said Mexico should stay in line with its northern neighbor for at least the rest of 2022.

Investors are assigning similar odds to either a half-point or three-quarter point increase by the Fed in September, according to the prices of futures contracts tied to the US central bank’s benchmark rate.

“My own personal feeling is that we cannot afford to decouple at least for the next six months, at least until the end of the year. I wouldn’t even consider it,” Heath said. The first half of 2023 will be “very data-driven.”

The market’s projection that the tightening cycle will end at 9.5% is a “good sense” of what could happen, Heath said, while adding the board hadn’t really discussed the matter and it will depend heavily on the data. He said he would likely try to maintain the terminal rate “as long as possible” before cutting, to ensure inflation was really under control. While it’s possible the bank could cut rates next year, it’s more likely to do so in 2024, he said.

Read More: Banxico Raises Key Rate to Highest Ever as Prices Soar 

The board had signposted the 75 basis-point hike with hawkish forward guidance in its previous decision but softened that notice in its statement following last week’s meeting. Heath said the market “got the message perfectly” that the change in language meant “we’re not sure that we’re going to keep on increasing 75, and most likely it’s going to be 50.”

Inflation hit its fastest pace in over 21 years in July, at 8.15%, more than double the upper end of the bank’s target rate of 3%, plus or minus one point. Heath said he saw price growth peaking in August or September.

Mexico’s inflation will probably show more inertia in slowing down than the US due to factors like insecurity, the lack of competition in its economy and President Andres Manuel Lopez Obrador’s planned minimum wage increases.

The bank sees inflation peaking at 8.5% in the third quarter of this year, then falling to 3.2% by the end of 2023. Private sector economists are less optimistic, projecting inflation will be at 4.5% at the end of next year.

Banxico has hiked by 4.5 percentage points over 14 months, starting with small, 25 basis-point increases and now going at triple that speed. 

Mexico’s economy kept slowly growing in the first half of the year, even as the US shrank. Heath says there’s a 50-50 chance that Mexico enters a recession, but if it does, it would be a “shallow” one. 

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