The Bank of Mexico’s benchmark interest rate will decline to 10% on Friday after the central bank’s governing board unanimously voted in favor of a 25-basis-point cut at a monetary policy meeting on Thursday.
Additional rate cuts appear likely in 2025, and some may even be larger than those implemented this year.
Thursday’s cut was the fifth time this year that the Bank of Mexico’s five-member board voted in favor of a 25-basis-point reduction to the central bank’s key interest rate. It came after the United States Federal Reserve cut its key rate by 25 basis points on Wednesday.
The Bank of Mexico’s overnight interbank interest rate, as it is officially known, was held at a record high of 11.25% between March 2023 and March 2024, when this year’s initial cut was made.
The reduction announced on Thursday was widely expected, even though Mexico’s annual headline inflation rate — 4.55% in November — remains above the 3% target of the Bank of Mexico (Banxico).
In a statement announcing the cut, the central bank noted that “annual headline inflation decreased from 4.76 to 4.55% between October and November.”
Banxico also acknowledged that “core inflation, which better reflects inflation’s trend, continued its clear downward trend, going from 3.80 to 3.58% in the same period.”
“… Looking ahead, headline and core inflation are still foreseen to follow a downward trend,” the bank said before highlighting that “the possibility that tariffs on U.S. imports from Mexico are implemented has added uncertainty to the forecasts.”
Banxico said that “looking ahead,” its governing board “expects that the inflationary environment will allow further reference rate reductions.”
“In view of the progress on disinflation, larger downward adjustments could be considered in some meetings, albeit maintaining a restrictive stance,” the bank said.
“… Actions will be implemented in such a way that the reference rate remains consistent at all times with the trajectory needed to enable an orderly and sustained convergence of headline inflation to the 3% target during the forecast period,” Banxico said.
The central bank anticipates that inflation will trend down in 2025 and 2026.
It is currently forecasting a 3.8% annual headline rate in the first quarter of 2025, with that rate predicted to fall to 3.5% in Q2, 3.4% in Q3 and 3.3% in Q4 of next year.
Banxico forecasts that the headline rate will continue to fall gradually in 2026 to reach the 3% target in the third quarter of that year.
Reuters reported that the Mexican peso “reversed earlier losses and strengthened marginally against the dollar following Banxico’s rate decision.”
It was trading at 20.31 to the US dollar shortly before 4 p.m. Mexico City time.
Mexico News Daily
