Mexico Macro Monitor: Banxico minutes reveal confidence on reducing inflation and interest rates

MEXICO - In Brief 10 Apr 2025 by Mauricio González

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Banxico is confident that inflation will continue to decline, downplays risks, and signals that the interest rate cut will persist according to the minutes from March 27 meeting The Governing Board of the Bank of Mexico (Banxico) unanimously decided to cut the benchmark interest rate by 50 basis points, lowering it to 9.00%. Key highlights of the decision: - Inflation has shown a downward trend but remains above the target. - Global shocks (e.g., shifts in trade policies) could disrupt its trajectory, though their impact is deemed manageable. - Inflation expectations remain firmly anchored. Monetary policy rationale: - The cut reflects that the previous level of monetary restraint is no longer as necessary as during past inflationary shocks. - Additional gradual cuts are expected (potentially 50 bps in upcoming meetings), but policy will stay restrictive to ensure inflation converges to the target. - The ex-ante real rate (5.6%) remains above the neutral range (1.8%-3.6%), leaving room for further adjustments. Members’ positions: Unanimity on the cut, but with nuances. Some noted inflation is already nearing the target, while others warned against excessive easing, stressing the need to preserve credibility. - Future decisions will hinge on: - Inflation dynamics and expectations; - The impact of international trade policies; - Economic growth performance and exchange rate trends. Conclusion: Banxico is steering monetary policy based on gradual yet fragile disinflation. It remains confident that inflation is on track to reach the 3% annual target and thus signals that interest rate reductions will continue. 2025 0410 Mexico Macro Monitor Banco de Mexico Minutes