The staff of the Bank of Mexico, through the analysis of monetary rules, has concluded that, given the current economic circumstances and the decrease in inflation, it is advisable for the Governing Board to reduce the reference rate at a more gradual pace. This leaves the stance of the majority of the Board, excluding the former Deputy Governor Espinosa, in favor of accelerating the decrease of the reference rate at the end of last year with a result of 3-1.
The current conditions of the national economy, along with the good news in the disinflation process and a less aggressive attitude from the President of the United States, Donald Trump, regarding trade policy with Mexico, provide a conducive environment for the Bank of Mexico to continue reducing the reference rate at a higher pace. Thus, there is a possibility that at the beginning of this year this trend of greater reduction of the reference rate will be maintained.
Regarding inflation, which reached 8.8% annually in August 2022 and is currently below 4.0% annually, a significant decrease has been observed, showing an encouraging outlook. The caution with which this process has been managed has been well received by international financial markets, considering the global economic challenges arising from the Covid-19 pandemic, the situation in Ukraine, and the recent presidential elections in Mexico and the United States.
In relation to monetary policy decisions, it is expected that the Governing Board may opt for a reduction of 50 basis points in the reference interest rate, bringing it to 9.50%. Expectations point to moderate economic growth in 2025, reflecting a continued slowdown of the Mexican economy.
On the other hand, the communication from the Bank of Mexico has been clear regarding the intention to continue reducing the reference rate more significantly, remaining alert to possible additional adjustments in a disinflation context. The next monetary policy meeting of the Bank will be key to observe the decisions to be made this year.
