(Bloomberg) -- Mexico’s central bank could make larger cuts to the benchmark interest rate at the year’s first monetary policy meetings due to slowing inflation, the board said in a report.
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These larger rate cuts will not necessarily continue later in the year, Banxico, as the central bank is known, said in its 2025 monetary program report. “In the bank’s central scenario, even with the downward adjustments to be made, the monetary policy stance would remain in restrictive territory throughout the year,” the bank said.
Banxico warned that the balance of risks for inflation remains tilted to the upside, mainly due to the persistence of core inflation.
Mexico’s headline inflation slowed to 3.69% in early January from the year before, down from 3.99% in late December, improving the odds of a bigger interest rate cut at the central bank’s next policy meeting on Feb. 6.
Banxico cut its key rate by a quarter-point for a fourth straight meeting to 10% last month, with policymakers indicating that “in view of the progress on disinflation, larger downward adjustments could be considered in some meetings.”
The bank sees moderate growth of 1.2% in the Mexican economy for 2025, with downside risks and a great deal of uncertainty, according to the monetary report. The potential policies of President Donald Trump’s administration put economic activity and inflation forecasts in doubt, the bank said.
Given US-Mexico economic integration, changes to trade and financial policies would have repercussions for Mexico’s macroeconomic fundamentals, the bank said.
Trump has threatened to impose 25% tariffs on Mexico if it doesn’t reduce border crossings of undocumented migrants and drug trafficking into the US. Mexican President Claudia Sheinbaum has said that she has demonstrated Mexico’s progress in both areas to Trump and that she is confident of having a good relationship with the country’s largest trade partner.
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