Author: Brendan O’Boyle
MEXICO CITY (Reuters) – The Bank of Mexico may increase the size of its benchmark interest rate cut at future meetings as inflation eases in Latin America’s second-largest economy, minutes from the central bank’s December monetary policy meeting showed on Thursday.
Banxico, as Mexico’s central bank is known, cut its benchmark interest rate by 25 basis points to 10.00% in a unanimous decision by its five-member governing board last month.
“Given progress in disinflation, larger downward adjustments could be considered at some meetings, although a restrictive stance would be maintained,” the minutes said.
An analysis of all the positions of the committee members showed that several of them support the discussion of larger rate reductions.
Banxico began a rate-cutting cycle last March amid falling inflation, ultimately making five 25-basis-point cuts and lowering the benchmark rate from a record 11.25% it reached in 2023.
At the December meeting, one of the five members pointed to “undeniable progress in disinflation” as support for their view that “the size of rate cuts in some of the upcoming monetary policy decisions needs to be increased.”
Another member noted “the importance of communicating that more extensive adjustments could be made at subsequent policy meetings.”
PROGRESS OF DISINFLATION
The comments about larger rate cuts were a contrast to recent meetings. Sticky inflation in 2024 prompted warnings from policymakers not to cut Mexico’s key interest rate too quickly.
Banxico has taken a looser approach to monetary easing than some of its Latin American counterparts, such as Brazil and Uruguay, which have resumed raising rates after quickly lowering them only to see inflation rebound.
Minutes showed that while two members urged caution in December, the committee as a whole highlighted a downward inflation trajectory even as it revised upward its year-end inflation forecasts for 2025 at the meeting.
“The majority of members stated that the revision of forecasts does not suggest an end to the disinflation process, but a more gradual reduction in overall and core inflation,” the minutes said.
Mexico’s headline annual inflation rate fell more than expected in December, reaching 4.21%, official data released earlier on Thursday showed.
Banxico targets inflation at 3%, plus or minus one percentage point.
