UPDATE 1-Banxico governors agree on greater gradualism, caution for future rate moves

Mexico's central bank governors all agreed that greater gradualism and caution should guide future interest rate decisions, ‌citing trade uncertainty and new taxes going into 2026, minutes from the bank's December monetary policy meeting showed on Thursday. Those include new ‍taxes and tariff increases on imports into Mexico that a majority of governors are likely to push up prices in 2026.

Mexico's central bank governors all agreed that greater gradualism and caution should guide future interest rate decisions, ‌citing trade uncertainty and new taxes going into 2026, minutes from the bank's December monetary policy meeting showed on Thursday. The central bank, known as Banxico, lowered its benchmark interest rate ⁠by 25 basis points in December to 7.00%, its lowest level since April 2022. The decision was 4-1, with Deputy Governor Jonathan Heath voting to hold.

The board's majority argued that recent progress on inflation, a weak economy, and a strong peso ​justified the 25 bp cut, but flagged several factors meriting a more cautious outlook in future decisions. Those include new ‍taxes and tariff increases on imports into Mexico that a majority of governors are likely to push up prices in 2026. Mexico enacted tariff hikes of up to 50% on imports from China and several other Asian countries with which it does not have a trade agreement, aimed at ⁠boosting local ‌industry. Lawmakers also approved a slate ⁠of new special taxes on certain products like soda and video games. Thursday's minutes show the governors mostly see the inflationary effects as temporary, but ‍some flagged caution is required in case the effects put longer-term pressure on prices. One member commented that the implementation of special taxes ​on certain products does not generally distort market prices, based on empirical evidence. "He/she highlighted that, however, on this occasion, it ⁠will take time to ensure that no second-round effects materialize either." That member, who voted for December's rate cut, said "a wait-and-see approach will need to be ⁠adopted." Analysts have largely anticipated the board will likely pause rate cuts in the first quarter of the year, after interpreting changes in the December decision's future guidance as signaling a shift.

The board's most dovish governor Heath advocated the board keep ⁠rates where they are for an unspecified period in order to figure out bring down core inflation and prevent an ⁠uptick in headline inflation, the ‌minutes showed. The closely-watched core index, which strips out volatile products, has been outside the central bank's target range since May, rising for much of 2025. It ticked down in December ⁠but still remains above target, according to official data released on Thursday.

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