Banxico Cuts Interest Rate to 11%, First Since February 2021

Mexico’s Central Bank (Banxico) has lowered the interest rate by 25 basis points to 11%, marking the first cut since Feb. 11, 2021. However, analysts do not anticipate this to signal the start of a continuous rate-cutting cycle.

The monetary authority stated that it will base its future decisions on available information and take into account the progress of inflation and prevailing challenges to facilitate the orderly and sustained convergence of inflation to the 3% target. "The Governing Board will closely monitor inflationary pressures, as well as all factors influencing the projected trajectory for inflation and its expectations," stated the monetary policy announcement.

Sergio Luna, chief economist, Mifel, noted that the emphasis on basing future decisions on available information was expected. He suggested that the rate would likely remain unchanged in May and decrease again in the June meeting. "This will largely depend on how inflation behaves. We are likely to see a peak of around 4.8% in the summer. The speed at which it declines will be crucial in determining whether more aggressive cuts can be made," Luna said.

Alfredo Coutiño, Director of Economic Analysis, Latin America at Moody's Analytics, expressed doubts about the discontinuation of a continuous cycle, as some members of Banxico's Board have stated that a rate cut would not necessarily lead to consecutive similar actions. The votes in favor of lowering the rate came from Governor Victoria Rodríguez and Deputy Governors Galia Borja, Jonathan Heath, and Omar Mejía, while Irene Espinosa sought to maintain the rate at its previous level of 11.25%.

Although José Luis Ortega, Director of Active Investments, BlackRock Mexico, acknowledged that the cut does not automatically signify the beginning of a monetary easing cycle, he speculated that further cuts could follow. Despite Banxico’s rate cut, the real interest rate remains high at 7.2%, which could impact borrowing and lending decisions and influence overall economic activity.