 "An employee checks bundled 500 Mexican Pesos banknotes at the Bank of Mexico printing facility, in El Salto, Jalisco state, Mexico. AFP File")
The Bank of Mexico, as predicted, reduced its benchmark interest rate by 25 basis points to 11.00% on Thursday in a four-to-one decision by its governing board, marking the first rate decrease since the bank began a tightening cycle in 2021.
Banxico, as the Mexican central bank is known, has stated that it will closely watch inflationary pressures and that at its next monetary policy meeting, “it will make its decisions depending on available information.”
Banxico Governor Victoria Rodriguez, along with deputy governors Galia Borja, Jonathan Heath, and Omar Mejia, voted in favour of the rate drop. Deputy Governor Irene Espinosa voted to keep the rate at 11.25%.
Analysts polled by Reuters had overwhelmingly predicted the board would cut the rate by 25 basis points after holding it steady for seven straight policy meetings.
“In our opinion, the 4-1 vote significantly reduces the probability of a rate pause in May,” said analyst Luis Adrian Muniz at Vector Analisis. “In this sense, continuous cuts seem most likely, at least during the next two quarters.”
Banxico said that headline inflation is still forecast to converge to its target of 3%, plus or minus a percentage point, in the second quarter of 2025. Its forecast for year-end headline inflation was revised upwards to 3.6%, from 3.5% previously.
Impact Shorts
View AllGoldman Sachs analyst Alberto Ramos in a note to clients that Banxico’s “inflation forecasts for end-2024 are still too optimistic.”
Mexico’s rate cut contrasts with the stance of the U.S. Federal Reserve, which on Wednesday left interest rates unchanged, though Fed Chair Jerome Powell underscored that recent high inflation readings had not changed the underlying “story” of slowly easing price pressures in the U.S. as the central bank stayed on track for three interest rate cuts this year.
In Latin American regional powerhouse Brazil, the central bank on Wednesday cut its benchmark interest rate by 50 basis points at a sixth straight policy meeting, while flagging it may change the course of the current easing cycle after its next decision in May.