The Bank of Mexico (Banxico) cut the interest rate by 25 basis points, leaving it at a level of 10.75 percent, in response to rising prices for goods and services in the country.
This is the first cut that Banxico has made after maintaining the rate at 11 percent since last March. The decision was not unanimous, as only deputy governors Jonathan Heath and Irene Espinosa voted in favor of maintaining the benchmark.
Governor Victoria Rodríguez Ceja and deputy governors Galia Borja Gómez and Omar Mejía Castelazo voted for a 25 basis point cut.
“Although the inflationary outlook still warrants a restrictive stance, the evolution it has shown implies that it is appropriate to reduce the degree of monetary tightening,” the financial institution said in its fifth monetary policy decision of the year.
Under the central bank’s current scenario, inflation is expected to reach its three percent point target by the fourth quarter of 2025.
Inflation has been on the rise for the past five months
Today, the National Institute of Statistics and Geography (INEGI) announced that inflation accelerated to 5.57 percent in July, the highest since May 2023, marking five consecutive months of increases.
The agency indicated that the National Consumer Price Index (INPC) was pressured by an increase in the cost of fruits and vegetables, which rose 23.55 percent compared to the same period in 2023.
According to Banxico, the upward risks to inflation include a greater exchange rate depreciation, more price increases, climatic impacts and an escalation of current geopolitical conflicts.
“The actions implemented will be such that the reference rate is consistent, at all times, with the path required to promote the orderly and sustained convergence of general inflation to the three percent target within the expected time frame,” added Banxico, headed by Victoria Rodríguez Ceja.
He explained that despite recent financial pressures, where financial markets in Mexico and the world, as well as the exchange rate, registered volatility, the inflationary environment is expected to allow for discussion of adjustments in the reference rate.
“The central bank reaffirms its commitment to its priority mandate and the need to persevere in its efforts to consolidate an environment of low and stable inflation,” Banxico stated.
For Carlos Morales, director of sovereign risk at Fitch Ratings, the benchmark is expected to decrease in the remainder of the year to at least a level of 10.25 percent.
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“We expect inflation to resume its decline, given the relatively tight stance of monetary policy. We now anticipate only modest further cuts to 10.25 percent in the latter part of the year, and these will occur relatively cautiously thereafter,” the specialist explained.
2024-08-08 19:02:13
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