Banxico's Balancing Act: Navigating Inflation and Interest Rate Strategy

The Bank of Mexico is considering further interest rate cuts due to stable inflation, a sluggish economy, and U.S. policy changes. Despite declines in headline inflation, core inflation remains above target. Banxico faces the challenge of supporting growth while controlling inflation, amid potential tariff impacts.

The Bank of Mexico is weighing further reductions in interest rates as inflation remains stable and the U.S. Federal Reserve eases its policies. During a recent policy meeting, the central bank, known as Banxico, cut the benchmark rate to 7.5%, its lowest since May 2022, due to a sluggish economy.

Board member Jonathan Heath opposed the rate cut, expressing concerns over potential inflationary risks from proposed tariffs on Chinese imports, including a 50% duty on cars and a 35% duty on steel and toys. Heath's call for caution reflects a divergence in opinion on the board regarding inflation control strategies.

Recent data indicates core inflation has increased, reaching 4.28% in September, while headline inflation climbed to 3.76%. Despite these challenges, Mexico's President Claudia Sheinbaum supports Banxico's interest rate strategy to balance inflation control and economic growth.

(With inputs from agencies.)