Market News

BY  Maya Averbuch

Several members spoke of a “new stage” of monetary policy in which changes could be made quickly to bring inflation closer to the bank’s 3% target. Some members specified they could consider another half-point cut at the bank’s next decision in March, according to the minutes of the bank’s Feb. 6 decision released Thursday.

Banco de Mexico, known as Banxico, lowered its key rate by 50 basis points to 9.5% in a split vote. Four members of the board supported the move, while Deputy Governor Jonathan Heath voted for a quarter-point cut. The board in its post-decision statement said it planned to consider cuts of a similar magnitude at upcoming decisions.

US President Donald Trump in early February postponed a decision on whether to impose 25% tariffs on goods coming from Mexico and Canada. Trump offered a one-month delay on tariffs as Mexico’s President Claudia Sheinbaum and Canada’s Prime Minister Justin Trudeau pledged to work on border security and combat drug trafficking.

Banxico members, whose decision was announced the week of the political deal, “highlighted the risk associated with the possible effects of policies that could be implemented by the new US administration,” according to the minutes. Some members said that if tariffs are imposed there could be upward pressure on inflation from currency depreciation and downward pressure from greater-than-expected slack in the economy.

One member said the bank should be prepared for a range of possible scenarios but added “although the macrofinancial environment poses considerable challenges as seen in recent days, it is important not to overlook the progress made in the convergence to the inflation target.” Another cautioned that US policy “should not cloud judgment or lead to rushed decision.”

Governor Victoria Rodriguez on Wednesday in a quarterly presentation said that the bank’s forecasts did not take into account US policies that had not been implemented yet. She also said that Mexico’s financial checks were sufficient to handle the US’s designation of cartels in Latin America as terrorist organizations, and mechanisms in Mexico allow for the closure of accounts with activity linked to illicit groups.

Annual inflation in January slowed to 3.59% from 4.21% the month prior. Core inflation, a metric that excludes volatile items such as fuel, reached 3.66%. The bank targets inflation at 3%, plus or minus one percentage point.

Board members also discussed the reference rate differential between Banco de Mexico and the US Federal Reserve. One member pointed out it is above the average that existed before the Covid-19 pandemic. The Fed chose to leave the reference rate unchanged at its monetary policy decision prior to Banxico’s vote, the board members noted.

“The Board estimates that looking forward it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes,” policymakers wrote in the Feb. 6 post-decision statement. “It anticipates that the inflationary environment will allow the rate cutting cycle to continue, albeit maintaining a restrictive stance.”

Before the February decision, Mexico’s congress approved a new Banxico policymaker, Jose Gabriel Cuadra, who was nominated by President Sheinbaum. He had previously served as director of the central bank’s department of economic studies. Banxico-watchers are waiting to see what Cuadra’s influence will be on the five-person board.

The bank’s next rate-setting decision will be announced on March 27. The bank on Wednesday in its quarterly report revised its projection for 2025 gross domestic product growth to 0.6% from 1.2% prior and maintained its 2026 forecast of 1.8%.