The Bank of Mexico cut its benchmark interest rate by 50 basis points for the third meeting in a row on Thursday, responding to contained inflation levels despite ongoing uncertainty over trade tensions and economic weakness.
The central bank’s governing board reached the decision unanimously, in line with expectations from analysts surveyed by Reuters news agency. This move lowers the benchmark interest rate to 8.50%, its lowest level since August 2022.
In its statement announcing the rate cut, Mexico’s central bank indicated that it may consider additional reductions of a similar size in upcoming meetings.
Headline inflation in April reached 3.93% year-on-year, an uptick from the previous month, yet still within the central bank’s target range.
Banxico, as the Bank of Mexico is commonly known, aims to keep inflation at 3%, with a tolerance margin of one percentage point above or below.
The bank noted that its board considered Mexico’s sluggish economic activity as well as ongoing trade tensions with the United States, the country’s main trading partner, in making its decision.
“The changes in economic policy by the new US administration have added uncertainty to the forecasts,” Banxico stated, cautioning that US policies could steer inflation in either direction.
Furthermore, according to a late April Reuters poll, analysts warned that uncertainty surrounding US President Donald Trump’s tariffs is expected to weigh on private spending and investment in Mexico for the remainder of the year.
Official data showed that Mexico’s gross domestic product grew by only 0.2% in Q1, just enough to sidestep a technical recession. The same Reuters survey projected that the economy would grow at a similarly sluggish pace of 0.2% for the entire year.
In regard to economic growth, “the environment of uncertainty and trade tensions pose significant downward risks,” Banxico added.
The central bank’s statement on Thursday reflected a “growing reluctance to move too quickly,” according to Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, adding that the statement underscored “persistent economic weakness” three separate times.
However, Alberto Ramos, head of Latin America economic research at Goldman Sachs, stated that Banxico “remains inclined to continue to frontload the rate normalisation cycle” and “does not seem to be particularly defensive in the face of external uncertainty.”
Despite their differing interpretations, both Ramos and Abadia anticipate another 50-basis point rate cut at the central bank’s next meeting.