Mexico Takes Cautious Steps with Interest Rate Cut Amid Inflation Woes

The Bank of Mexico reduced its benchmark rate to 7.25% as the economy falters, though persistent core inflation remains a concern. With cautious guidance for future rate cuts, the central bank highlights the ongoing risks of high inflation, despite recent declines in headline and core indexes.

In a strategic move to navigate economic uncertainties, the Bank of Mexico lowered its benchmark interest rate by 25 basis points to 7.25%, its lowest since May 2022. However, the central bank has expressed caution regarding further rate reductions, as stubborn core inflation continues to challenge economic stability.

While the latest rate cut was anticipated, the bank's shift in guidance, limited to its upcoming meeting, marks a change in approach amid persistent inflation risks. Deputy Governor Jonathan Heath remains vigilant, opposing the cut for the fourth time due to inflation exceeding the target range.

Experts like Alberto Ramos and Alfredo Coutiño highlight the delicate balance Banxico must maintain between supporting economic growth and managing inflation, especially with Mexico's GDP contraction impacting its monetary policy decisions.

(With inputs from agencies.)