(Bloomberg) — Mexico’s central bank could make bigger cuts in its benchmark interest rate at its first monetary policy meeting as inflation slows, a report said.
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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 if a downward adjustment is made, the monetary policy stance will remain in restrictive territory throughout the year,” the bank said.
Banxico warned that the balance of risks to inflation remains tilted to the upside, mainly due to the persistence of core inflation.
Mexico’s headline inflation slowed to 3.69% at the start of January from a year earlier, down from 3.99% at the end of December, improving the prospect of more rate cuts at the central bank’s next policy meeting on February 6.
Banxico cut its key rate for the quarter for the fourth spotlight to 10% last month, with policymakers indicating that “larger downward adjustments may be considered in some meetings given progress on disinflation.”
The bank sees moderate growth of 1.2% in the Mexican economy for 2025, with a lack of risk and much uncertainty, according to the monetary report. Potential policies of President Donald Trump’s administration have called into question economic activity and inflation forecasts, the bank said.
Given US-Mexico economic integration, changes in trade and financial policies would have consequences for Mexico’s macroeconomic fundamentals, the bank said.
Trump has threatened to impose 25% tariffs on Mexico if it does not reduce border crossings of undocumented migrants and drug trafficking into the US. Mexican President Claudia Sheinbaum said she has shown Mexico’s progress in both areas to Trump and is confident she has a good relationship with the country’s largest trading partner.
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