Background on Banco de México (Banxico)
Banco de México, commonly known as Banxico, is the central bank of Mexico responsible for managing monetary policy and ensuring price stability. It plays a crucial role in maintaining the country’s economic health.
Current Economic Context in Mexico
Mexico’s economy has been facing challenges, including a weak growth rate and rising inflation. The country’s central bank, Banxico, has been actively adjusting interest rates to tackle these issues.
Banxico’s Interest Rate Adjustments
According to a Reuters survey, 21 out of 26 specialists expect Banxico to lower its key interest rate by another 50 basis points (bp) in their upcoming announcement, placing it at 8%. This would mark the fourth consecutive reduction of 50 bp.
- Three experts predict a smaller reduction of 25 bp.
- Two participants believe the rate will remain unchanged, following the recent decision by the US Federal Reserve.
Banxico initiated a monetary adjustment cycle in 2024, raising the key interest rate to a record high of 11.25% in an effort to curb inflation post-pandemic.
Inflation Concerns and Future Adjustments
However, the consumer price index recently increased, surpassing the official target of 3% ± 1 percentage point. This has raised concerns about the space available for further significant interest rate reductions.
Subgobernador Jonathan Heath suggested pausing substantial rate cuts and evaluating data, given the current inflation situation.
A new 50 bp reduction would place the key rate at its lowest in three years, potentially providing relief to Mexico’s struggling economy. However, market expectations lean towards Banxico exercising caution in subsequent adjustments.
- After the upcoming decision, Banxico is projected to cut rates by 25 bp in August’s announcement, followed possibly by another similar reduction in September, placing the rate at 7.5% by the end of the third quarter.
- The majority consensus anticipates a pause in adjustments thereafter, with the key rate concluding 2026 at 7%.
Mexico, the second-largest economy in Latin America, narrowly avoided a technical recession in the first quarter. Nevertheless, it continues to face significant risks due to sluggish internal activity and uncertainties surrounding US tariff policies.
Key Questions and Answers
- Q: What is the expected interest rate adjustment by Banxico? A: Most experts predict a 50 bp reduction, placing the key rate at 8%.
- Q: How many consecutive times has Banxico reduced interest rates? A: This would be the fourth consecutive reduction of 50 bp.
- Q: What are the concerns surrounding further interest rate cuts? A: Recent inflation data has raised concerns about the space available for substantial interest rate reductions.
- Q: What is the current state of Mexico’s economy? A: The Mexican economy faces challenges such as weak growth and rising inflation.
- Q: What are the risks facing Mexico’s economy? A: Despite avoiding a technical recession, Mexico still grapples with sluggish internal activity and uncertainties related to US tariff policies.
