December 20, 2024
Mexico’s central bank lowered its benchmark interest rate by 25 basis points to 10.00% on Thursday, signaling that larger rate cuts could be considered in future meetings due to progress on inflation in Latin America’s second-largest economy.
The unanimous decision by the Bank of Mexico’s five-member governing board marks the fifth rate cut this year, following a reduction from a record high of 11.25% in March. This latest cut comes after headline inflation slowed slightly more than expected last month, and a day after the U.S. Federal Reserve made a similar cut.
“In view of the progress on disinflation, larger downward adjustments could be considered in some meetings, albeit maintaining a restrictive stance,” Banxico, as the bank is known, stated in a post-meeting announcement.
Analysts had anticipated the 25-basis-point cut after annual headline inflation slowed in November to 4.55%, below the 4.59% forecasted by economists in a Reuters poll and down from 4.76% in October. Mexico’s core consumer price index, which excludes volatile energy and food prices and is seen as a more reliable measure of price trends, fell to 3.58% in the 12 months through November, from 3.80% in October. Banxico targets inflation at 3%, plus or minus a percentage point.
Despite the downward trend in both headline and core inflation, the board raised its year-end inflation forecasts for 2024 and 2025. The board now expects headline inflation to reach the 3% target in the third quarter of 2026, later than the previous guidance of the fourth quarter of 2025.
Following the board’s unanimous cut in mid-November, Mexican markets were unsettled by U.S. President-elect Donald Trump’s threat of a 25% tariff on imports from Mexico. Thursday’s statement noted the Mexican peso’s volatility amid “the possibility of measures that could weaken integration with our main trading partner.” The peso reversed earlier losses and strengthened slightly against the dollar following Banxico’s rate decision.
Source: (Reuters)
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