Banxico Holds Rates Steady Amid Inflation Concerns

The Bank of Mexico maintained its benchmark interest rate at 7.00%, marking the first pause after 12 consecutive rate cuts. The central bank revised its inflation target expectations, attributing the decision to rising core inflation and the need to assess new fiscal policies' impacts.

The Bank of Mexico decided to maintain its benchmark interest rate at 7.00% on Thursday, aligning with expectations against a backdrop of rising inflation and economic growth. The central bank's governing board made the decision unanimously, according to an official statement.

Known as Banxico, the central bank adjusted its inflation target forecast to reach 3% by the second quarter of 2027, shifting from an earlier prediction for the third quarter of this year. This marks the bank's first pause after a streak of 12 rate cuts, which began in August 2024 from a previous rate of 11.00% to 10.25%. The rate reduction initiative kicked off in March 2024 when the rate peaked at a record 11.25%. Despite a 25 basis point reduction at the December meeting, Banxico indicated a readiness to pause rate cuts, citing uncertainty over new taxes and tariffs effective from January, as per meeting minutes.

Rising core inflation prompted the central bank to revise its forecast, impacting the decision to maintain the current rate. Additionally, the central bank aims to assess the outcomes of new fiscal policies introduced in January. Recent figures show both headline and core inflation increased in early January, recording 3.77% and 4.47%, respectively, further deviating from the bank's target.

(With inputs from agencies.)