The Bank of Mexico lowered its benchmark interest rate by 50 basis points for the third consecutive meeting on Thursday, as inflation remains within the bank’s target range but uncertainty persists due to trade tensions and a weak economy. The unanimous decision, which was expected by analysts polled by Reuters, brings Mexico’s benchmark rate to 8.50%, the lowest since August 2022.
Inflation and Economic Factors
In a statement announcing the decision, the Mexican monetary authority indicated that it could consider cutting the rate by a similar magnitude at future meetings. Headline inflation in Mexico hit 3.93% on an annual basis in April, accelerating from the previous month but still within the central bank’s target range of 3%, plus or minus a percentage point.
Banxico, as Mexico’s central bank is known, acknowledged the country’s weak economic activity while also considering the ongoing trade tensions with the United States, its top trading partner. The bank warned that U.S. policies, particularly those under President Donald Trump’s administration, could affect inflation in either direction.
Impact of U.S. Trade Policies
Analysts polled by Reuters in late April indicated that uncertainty surrounding Trump’s tariffs is likely to hurt private spending and investment in Mexico throughout the rest of the year. In its latest report, Mexico’s GDP expanded just 0.2% in the first quarter, narrowly avoiding a technical recession. A Reuters poll forecast the same rate of growth for the entire year.
Economic Growth Outlook
Banxico warned that the ongoing uncertainty and trade tensions posed significant risks to economic growth, particularly in the face of external factors. The bank’s statement also indicated a “growing reluctance to move too quickly,” referencing “persistent economic weakness” multiple times.
Analysts’ Forecasts and Future Rate Cuts
Despite the cautious tone, analysts like Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, and Alberto Ramos, head of Latin America economic research at Goldman Sachs, expect the Bank of Mexico to continue with rate cuts. Both analysts anticipate another 50 basis point cut at the bank’s next meeting.
