Banxico Cuts Interest Rate for Fifth Time This Year, Setting It at 7.75%
The Bank of Mexico (Banxico) announced on Thursday a new adjustment to its benchmark interest rate, lowering it from 8% to 7.75%, amid a slowdown in inflation during the month of July. The decision, adopted by a majority of the Governing Board, reflects the central bank's caution in the face of mixed signals in both the domestic and international economic environments. It’s worth noting that one of the deputy governors, Jonathan Heath, advocated for keeping the rate unchanged, highlighting the different perspectives within the country’s top monetary authority.
This cut is the fifth downward adjustment so far in 2024, adding up to a total reduction of 350 basis points from its historic high of 11.25%. Banxico’s decision is in response to several factors, including annual inflation that eased to 3.51% in July. However, analysts warn that this drop may be temporary, since it is largely due to a high base of comparison with the same month last year, when a significant price spike was recorded.
In its statement, Banxico reiterated that its outlook points to inflation converging towards its target rate of 3% by the third quarter of 2026. While the pace of price increases has slowed, risks that could push inflation upward remain, such as exchange rate volatility, fluctuations in international food and energy prices, and uncertainty surrounding U.S. trade policy, especially with the incoming administration.
The Mexican economy, meanwhile, continues to experience moderate growth amid signs of weakness in certain sectors and greater difficulty in accelerating the pace of expansion. The adjustments in monetary policy are meant to stimulate economic activity while keeping Banxico’s main objective in sight: preserving the purchasing power of the currency.
Looking ahead, Banxico is expected to maintain a cautious stance. Financial sector analysts consider it likely that the rate-cutting cycle will remain gradual, dependent on inflation trends and the evolution of external factors, such as U.S. trade policies and global financial conditions, which have been sources of volatility for emerging markets.
In summary, Banxico’s interest rate cut responds to a combination of recent lower inflation and the need to support an economy showing signs of slowdown. Nevertheless, the central bank faces the challenge of keeping inflation in check amid a still-uncertain environment. Prudence will continue to be the hallmark of Mexico’s monetary policy in the coming months, as both global and domestic indicators provide greater clarity.
