Background on Banxico and Its Role
Banquiers de México, or Banxico, is the country’s central bank and is responsible for managing monetary policy to maintain price stability. It plays a crucial role in ensuring the Mexican economy’s stability and growth.
Upcoming Interest Rate Decision
According to a Reuters survey of economists, Banxico is expected to reduce its key interest rate by 0.25 percentage points to 7.0% during its meeting on December 18. However, experts are divided on whether further rate cuts will be implemented at the beginning of the next year.
Historical Context and Current Economic Situation
This would mark the decimothird rate cut since February 2024, following a record-high reference rate of 11.25%. Despite this, more than half of the analysts anticipate one or two additional cuts by March, while the rest predict a pause in the ongoing accommodative cycle during the next quarter.
Economic Concerns and Inflation Risks
The upcoming monetary policy statement is expected to maintain a cautious tone, as concerns over weak economic conditions are balanced against rising inflation risks amid uncertain trade prospects.
Banxico’s Stance Compared to the Federal Reserve
Banxico’s approach mirrors that of the Federal Reserve, which recently lowered interest rates but signaled that there is limited room for further short-term accommodation.
Economists’ Predictions
Out of 29 economists surveyed from December 8 to 11, all predict that Banxico’s governing board will cut the reference rate by 0.25 percentage points from 7.25% to 7.0% on December 18.
“Despite persistent inflationary pressures, we still expect a 25 basis points rate cut at the upcoming Banxico meeting on December 18. However, these pressures, along with January’s health taxes and potential tariff hikes, increase the likelihood of a pause in February,” according to Morgan Stanley analysts.
Recent Economic Forecasts
In November, Banxico revised its 2025 growth projection for the Mexican economy down to nearly zero and kept its slow expansion estimate of 1.1% for the following year unchanged.
Key Questions and Answers
- What is the expected interest rate cut? Banxico is predicted to reduce its key interest rate by 0.25 percentage points to 7.0% on December 18.
- Why are economists divided on further rate cuts? Some analysts anticipate one or two additional cuts by March, while others expect a pause in the accommodative cycle during the next quarter due to rising inflation risks and uncertain trade prospects.
- How does Banxico’s stance compare to the Federal Reserve’s? Both central banks have recently lowered interest rates, but the Fed signaled limited room for further short-term accommodation, mirroring Banxico’s approach.
