Banxico Weighs Future Rate Cuts Amid Inflation Concerns

The Bank of Mexico's governing board is considering future interest rate cuts, to be discussed prudently based on data. Despite holding the benchmark rate at 11%, the board is closely monitoring inflation, particularly in services. Any future adjustments will depend on inflation trends and economic conditions.

The Bank of Mexico's governing board is exploring the possibility of future interest rate cuts, with prudence and a data-driven approach as key considerations, according to minutes from the bank's June monetary policy meeting released on Thursday.

Banxico, as the Mexican central bank is commonly known, maintained its benchmark interest rate at 11% in a split decision on June 27. Deputy Governor Omar Mejia dissented, advocating for a 25-basis-point reduction. The board highlighted ongoing inflation challenges and risks, emphasizing the need for cautious monetary policy.

Looking ahead, the board predicted that the inflationary environment might permit discussions on reference rate adjustments, noting the potential for global shocks to dissipate and economic activity to underperform expectations. Since a 25 basis-point rate cut in late March, Banxico has held the key rate steady at 11%, amid accelerating headline inflation.

Annual headline inflation rose for the fourth consecutive month, reaching 4.98% in June. The board is particularly focused on services inflation, which hasn't shown a clear downward trend. While future rate cuts remain possible, they will depend on improved inflation expectations and alignment with the bank's target by the end of 2025, according to the board.