Mexico’s central bank, Banxico, has lowered its key interest rate for the fourth consecutive meeting, reducing borrowing costs by a quarter-point to 10%. This move, which was unanimous among the bank’s decision-makers, comes as inflation slows and economic growth shows signs of deceleration.
The rate cut follows a trend of easing policies aimed at managing the country’s inflationary environment. According to Banxico, further reductions could be possible in the future, depending on inflation trends. While acknowledging that risks such as the uncertain outlook under the incoming U.S. administration and a cautious U.S. Federal Reserve still loom, Banxico’s board feels confident about continuing the easing cycle in a controlled manner.
Economists had mixed expectations ahead of the decision, with 21 of 29 surveyed predicting the quarter-point cut, while others hoped for a more aggressive half-point reduction. The bank’s cautious approach is driven by ongoing global uncertainties, including the new U.S. administration under President Donald Trump and the more conservative stance of the U.S. Federal Reserve.
The recent drop in inflation has prompted the move, with both headline and core inflation showing signs of slowing. In November, inflation fell to an annual rate of 4.55%, down from a high of 5.57% in July. Core inflation, which excludes volatile food and fuel prices, reached a 4.5-year low of 3.58%. The central bank’s target inflation rate is 3%, with a margin of one percentage point.
For 2024, economists expect inflation to end the year at 4.33%, with further deceleration predicted for 2025. Despite this, the outlook for economic growth remains modest, with GDP growth forecasted to slow to 1.2% in 2025. The central bank also expects the business environment to remain challenging, with concerns over trade relations, particularly with the U.S.
In its budget for 2025, the Mexican government has aimed to reduce public spending and narrow the deficit to 3.9% of GDP, signaling a reduced role for government-driven economic growth in the coming years.
