MNI WATCH: Banxico Set For Fourth Consecutive 25BP Rate Cut
MNI (BRASILIA) - The Central Bank of Mexico is widely expected to reduce its overnight interbank interest rate by 25 basis points to 10.00% on Thursday, marking its fourth consecutive rate cut, with a minority of analysts seeing a 50 bp cut as a real possibility.
The benign trajectory of core inflation is the main argument among Banxico's board members for continuing rate cuts, along with weak economic activity. Mexico's INPC annual inflation stood at 4.55% in November, down from 4.76% in October, while core inflation fell to 3.58%, continuing its downward trend.
Uncertainty in the economic outlook for the coming year is heightened by the relationship with the U.S. under President-elect Donald Trump, who has pledged to impose 25% tariffs on goods from Mexico and Canada, impacting the exchange rate.
FISCAL BACKDROP
Moody’s Ratings recently revised Mexico’s outlook to negative from stable, citing a weakening in policymaking and institutional frameworks that could undermine fiscal and economic performance.
Vice president and analyst Renzo Merino told MNI that the agency is monitoring government fiscal policies and the impact of potential changes to U.S. trade policies under Donald Trump to reassess the outlook by late 2025 or early 2026. (See MNI INTERVIEW: Moody's Monitors Mexico Fiscal Efforts, Peso)
Last month, Banxico cut rates by 25 basis points to 10.25% in the first unanimous decision since May. The board stated that the inflationary environment would allow for further adjustments to the reference rate.
Eugenio Gomez Alatorre, former deputy director of macroeconomic analysis at the Ministry of Finance and Public Credit, told MNI in an interview that the easing cycle began prematurely, with inflation still well above the target despite a weak economy. (See MNI INTERVIEW: Banxico To Cut 25BP Despite Inflation Risks)