UPDATE 1-Mexico's economic weakness, Fed cuts allowed room to lower rate, central bankers say

A majority of Mexico's central bank governors pointed to the country's weak economy as an argument for cutting the interest rate despite ongoing concerns about core inflation, minutes from the bank's November meeting showed on Thursday.

A majority of Mexico's central bank governors pointed to the country's weak economy as an argument for cutting the interest rate despite ongoing concerns about core inflation, minutes from the bank's November meeting showed on Thursday. The central bank, known as Banxico, earlier this month cut the benchmark interest rate by 25 basis points to 7.25%, its lowest since May 2022.

While that size cut was widely expected, the Banxico board struck a more cautious tone on its outlook going forward, highlighting the country's sticky core inflation. Core inflation, which strips out volatile food and energy prices, came in at 4.28% in October, above the bank's target range of 3% plus or minus one percentage point.

Still, most of the bank's members anticipated that the economy's weakness would continue contributing to lower inflation, allowing room to cut borrowing costs. Mexico's economy contracted 0.3% in the third quarter from the previous three-month period, according to preliminary data from Mexico's statistics agency.

A majority of the members also said the U.S. Federal Reserve's rate cut in October gave the Banxico board flexibility to cut its own rate. There are growing doubts that the Fed will cut rates again in December. At the November meeting, Deputy Governor Jonathan Heath, the sole dissenting vote to hold the benchmark rate at 7.50%, repeated his previous warnings about core inflation, noting that the bank's forecasts for core inflation had actually ticked up.

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