MNI WATCH: Banxico Set To Accelerate Pace By Cutting 50BP
MNI (BRASILIA) - The Central Bank of Mexico is expected to quicken the pace of its easing cycle, reducing its overnight interbank interest rate by 50 basis points to 9.50% on Thursday, marking its fifth consecutive rate cut. A minority of analysts are betting on a smaller cut or a hold due to uncertainty surrounding U.S. trade policy.
U.S. President Donald Trump imposed a 25% trade tariff on Mexico and Canada, along with an additional 10% on goods and services from China, starting Saturday. However, he agreed to put the new levies for Mexico and Canada on hold for a month after negotiations.
The pause provided some relief, but there is still uncertainty regarding further tariff measures. Investors are closely monitoring the Mexican peso’s developments amid fears of a full-blown trade war and its potential impacts on monetary policy.
PESO'S VOLATILITY
The peso has experienced some volatility since the beginning of the year, currently trading at 20.43 to the dollar, down from the stronger level of 20.26 on Jan. 26.
Last month, Banxico decided to cut rates by 25bps to 10.00% and signaled further reductions in 2025, potentially including larger cuts.
Mexico’s INPC annual inflation climbed 4.21% in December, down from 4.55% in November, reinforcing the prospect of additional rate cuts this year, though core inflation increased at 3.65%, from 3.58%.
Enrique Covarrubias, the former Banxico deputy manager of research strategy, told MNI in an interview that Banxico is likely to cut its interest rate by 50bps, but the outsized rate cut appears premature given inflationary risks and uncertainty surrounding U.S. President Donald Trump's trade tariff policy. (See MNI INTERVIEW: Banxico Set For Larger Cut That Poses Risks)