The Bank of Mexico cut its benchmark interest rate to its lowest level since May 2022 on Thursday and signaled that it may consider further easing at future meetings, amid ongoing concerns about global trade tensions and sluggish economic growth in Latin America’s second-largest economy.

Banxico, as the central bank is known, lowered its benchmark rate by 25 basis points to 7.5% in a divided vote. Deputy Governor Jonathan Heath was the only member of the five-person board who voted to keep the rate unchanged at 7.75%. The decision was largely anticipated by the market.

The bank continues to face two major challenges: reducing inflation while also supporting economic growth. Easing monetary policy could stimulate activity, but it also risks fueling price pressures. In a statement on Thursday, Banxico noted that it considered “weak economic growth” and shifting global trade conditions in its decision to reduce borrowing costs.

Even so, the fact that the bank opted for a quarter-point cut rather than a half-point cut, which it had implemented four times earlier this year, highlights concerns about persistent inflation, particularly in the closely watched core index. Core inflation, which strips out volatile food and energy prices, rose to 4.26% in the first half of September, according to official data released on Wednesday. Banxico targets inflation at 3%, within a range of plus or minus one percentage point.

Headline inflation also accelerated, reaching 3.74% in the first half of September, up from 3.49% in the first half of August. In updated forecasts published Thursday, the bank raised its estimate for year-end core inflation to 4.0% in the fourth quarter, compared with a previous forecast of 3.7%.

In its quarterly report in August, Banxico said that although Mexico’s economy remains weak, it continues to show resilience in the face of an uncertain global environment. Last month, the bank raised its 2025 growth forecast to 0.6%, up from 0.1%. It projects the economy will expand by 1.1% in 2026.

Gabriela Siller, head of analysis at Banco Base in Mexico City, wrote on X that “it is noteworthy that the forward guidance remains unchanged, implying that the governing board remains open to further interest rate cuts.”

Alberto Ramos of Goldman Sachs said in a note to clients that he expects two more 25-basis-point cuts this year, though he cautioned that the central bank may be underestimating persistent inflationary pressures.

Source: (Reuters)

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