Mexico's Inflation Tactics: The Balancing Act of Banxico

The Bank of Mexico is cautiously considering further interest rate cuts amidst improving inflation. The central bank recently lowered its benchmark rate, with inflation cooling more than expected. Some remain cautious due to uncertainties affecting financial variables and economic indicators.

The Bank of Mexico's governing board sees a glimmer of opportunity for additional interest rate cuts, yet proceeds with caution. Recent minutes from the bank's monetary policy meeting reveal a heightened sense of prudence against hasty moves.

At its latest meeting, Banxico, the colloquial name for the central bank of Mexico, decided unanimously to reduce the benchmark interest rate by 25 basis points, bringing it to 10.25%. This decision follows a surprising slowdown in annual headline inflation during the first half of November, dropping to 4.56% from the previous 4.69%, thus raising expectations of another cut at the upcoming December 19 meeting.

Despite setting a 3% inflation target, with a margin of one percentage point, Mexico's core consumer price index—a critical indicator that excludes volatile food and energy prices—surpassed predictions, recording an annual rate of 3.58%. Some board members point to ongoing uncertainties and market volatility as reasons to maintain a conservative approach to monetary policy, reflecting a need for cautious navigation through these turbulent economic waters.

(With inputs from agencies.)