Mexico’s inflationary environment is poised to allow further cuts to the benchmark interest rate, according to Victoria Rodriguez, Governor of the Bank of Mexico (Banxico). The central bank recently reduced the key rate by 50 basis points to 9.50%, following a series of 25-basis-point cuts from a peak of 11.25% in March 2024.
“Our work is not over. The fight against inflation is now in a new phase,” Rodriguez stated. The latest rate reduction brings Mexico’s interest rate to its lowest level since September 2022. Annual inflation has slowed to 3.69% in early January, the lowest since early 2021 and within the bank’s target range of 3%, plus or minus one percentage point.
Mexico’s peso and domestic stocks have experienced volatility due to the threat of U.S. tariffs on Mexican exports. These threats have been paused until March 1, following a bilateral agreement. Rodriguez expressed confidence that authorities from both countries would seek greater cooperation and lasting solutions.
Analysts have warned that tariffs could push Mexico into recession and trigger “stagflation” – a combination of high inflation, stagnant growth, and elevated unemployment. Rodriguez emphasized Banxico’s readiness to act to ensure the orderly functioning of Mexican financial markets, highlighting the importance of trade integration and Mexican participation in U.S. production chains for economic growth.
The Bank of Mexico remains vigilant as it navigates this new phase in its battle against inflation, with a focus on maintaining stability and fostering economic cooperation with the United States.
Source: Yahoo News
