Banxico lowers interest rate to 10.75%, what was the reason?

MEXICO CITY.- In a decision that for some was not expected, the Bank of Mexico (Banxico) decided cut the interest rate by 25 pointswhich left in 10.75%.

The measure was taken Despite the rise in inflation in the last five months, which just today was reported to have reached its highest level in 14 months in July.

After making the decision by majority vote, the Central Bank argued that “although the inflationary outlook still warrants a restrictive stance, the evolution it presents implies that it is appropriate to reduce the degree of monetary tightening“.

Second interest rate cut in Mexico this year

Con three votes in favor and two againstThis is the second rate cut this year following the March 21 meeting, when the Governing Board reduced the rate by 25 basis points to 11%.

This was the first cut since March 30, 2023, and was made in light of improved inflation expectations at the time.

The measure also contrasts with that taken by the US Federal Reserve (Fed), which on July 31 decided to keep the rate at a range of 5.25% to 5.5% for the eighth time, although it acknowledged that the time to make cuts is approaching.

Why did Banxico decide to lower the interest rate?

Las Analysts’ expectations were mixed after it was announced on Thursday that Mexico’s inflation rose to 5.57% in July, marking five months of increases and its highest level in 14 months.

The Central Bank acknowledged that “general inflation expectations for the end of 2024 have increased,” but it foresees that going forward the inflationary environment allows for discussion of adjustments in the reference rate.

The Governing Board raised its inflation forecast to 4.4% average for the last quarter of 2024 from a previous projection of 4%.

Even so, maintained its expectation for the end of 2025when inflation would average 3%, Banxico’s target.

Risks to the Mexican economy

As upward risks, Banxico stated the persistence of underlying inflationgreater exchange rate depreciation, higher cost pressures, climatic impacts and the escalation of geopolitical conflicts.

The Upcoming Monetary Policy Decision It will be on September 26, the last under the presidency of Andrés Manuel López Obrador, who will leave office on October 1.

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