The Bank of Mexico, also known as Banxico, has taken another step towards reducing its benchmark interest rate. The five-member governing board voted unanimously to lower the key rate by 25 basis points, bringing it down to 10.25%. This move is seen as a positive sign that core inflation is on the decline and could potentially lead to future rate cuts.
Banxico’s decision was expected by analysts who had forecast the reduction. The central bank cited an improved inflation outlook and a slowing down of core inflation, which has been trending downwards since October. Core inflation, a key indicator for price trends, slowed to 3.80% in the 12 months through October, from 3.91% in September.
The statement announcing the decision also hinted at future rate adjustments, saying that the inflation environment is expected to allow further reference rate changes. This leaves room for Banxico to cut rates again in the coming months, but officials will be keeping a close eye on the peso, particularly if the incoming Trump administration steps up its threats to impose tariffs on Mexico.
The Mexican peso has weakened significantly over the past six months due to concerns about post-Mexican election reforms and Donald Trump’s U.S. election victory last week. The uncertainty surrounding the future of the critical bilateral trade relationship between the two countries is a major concern for investors.
Alberto Ramos, head of Latin America research at Goldman Sachs, expects Banxico to deliver another 25-basis-point cut at its December meeting. However, he noted that the bar for accelerating the pace of cuts to 50 basis points is relatively high due to prevailing domestic and external uncertainty.
In conclusion, Banxico’s decision to lower the key rate by 25 basis points is a positive step towards reducing inflation and signaling future rate cuts are possible. The central bank will continue to monitor the peso and the bilateral trade relationship between Mexico and the U.S.
Source: Reuters
