Mexico central bank board signals smaller rate cuts amid sticky inflation, weak economy
All four board members who backed June's 50-basis-point cut — the fourth in a row — signaled openness to a slower pace going forward. At least two said the June move should be the last of that size.
Annual headline inflation accelerated in May beyond the central bank's target range of 3%, plus or minus one percentage point. While it eased in June to 4.32% after four months of increases, it remains above target.
Crucially, the core inflation index, a key gauge that strips out volatile prices, accelerated to 4.24% – its highest level since April 2024.
For the board's majority, "the central argument is that the weakness in the economy will create slack conditions that would allow inflation to converge toward the 3.0% target," analysts from Actinver said.
One of those governors noted the bank's current monetary policy stance "is appropriate to address risks to inflation on both sides of the balance," adding that "going forward, a more gradual approach will be adopted during the rate-cutting cycle."
Another suggested that "adjustments of lesser magnitude" could be considered given the inflation outlook.
Banxico, as Mexico's central bank is known, has cut its benchmark interest rate by 325 basis points since early 2024 and by 200 points this year alone, as inflation has eased from its 2022 highs.
Alberto Ramos, head of Latin America economic research at Goldman Sachs, said the balance of views on the board "remains dovish though more cautious," lowering the baseline for the board's next decision, in August, "to a cut of no more than 25 basis points."
Deputy Governor Jonathan Heath, who cast the sole vote at the June meeting to hold the rate at its previous level of 8.50%, called for prudence while making his dissent argument.
Heath said the expectation that inflation would naturally become low due to "greater slack conditions" is "unrealistic" because even though there is economic stagnation, current forecasts do not point to a deep enough recession that would sufficiently weaken aggregate demand.
Analysts polled by the central bank in the second half of June forecast the Mexican economy growing just 0.2% this year. The central bank's latest forecast, in late May, estimated growth at 0.1% for 2025.
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