Bank of Mexico Doubles Size of Incremental Interest Rate-Cutting Cycle that Began Six Months Ago
February 6, 2025
Six months passed after Mexican consumer price inflation peaked at 8.7% in September 2022 before the Bank of Mexico’s overnight interbank interest rate reached its highest level of restraint. That rate was then left at 11.25% for a full year from March 2023 until an initial 25-basis point cut in March 2024. After then making no rate change at the ensuing two policy reviews, a second cut in August began a sequence of four consecutive reductions at the last four scheduled reviews last year. At today’s first review of 2025, officials decided to double the incremental rate cut magnitude to 50 basis points, but not without one of five votes favoring a continuing 25-bp down-step.
Although consumer price inflation had fallen to 4.21% by December and despite indications of further disinflation seems to have occurred last month, officials maintained their existing projected inflation path with a forecast of 3.3% in this year’s final quarter and the targeted 3.0% not materializing until a year and half from now. Moreover, a released statement concedes that inflation risks around the forecast being skewed upward because of stubborn service sector price pressures and the possibility of tariffs and peso depreciation. That being said, the new interest rate level of 9.5% represents a significantly restrictive stance. With economic growth lately slowing, “the Board estimates that looking forward it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes,” that is by the new norm of 50 basis points at a time.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Mexico
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