In its first meeting of the year, the governing board of the Bank of Mexico (Banxico) approved a more aggressive cut to the interest rate, placing it at 9.50%, which represents a reduction of 50 basis points. This move was supported by the majority of board members, aligning with the 'dovish' block and opening the possibility for similar adjustments in the future.
The new deputy governor of Banxico, Gabriel Cuadra, cast his first vote aligned with the 'dove' block, as anticipated. This cut was justified in part by lower inflation, which is currently at 3.69%, a level not seen since 2021, and a core inflation of 3.72%, a figure close to the average between 2003 and 2019, when the inflation target of 3% was set.
Despite maintaining its expectations for inflation to reach the target by 2026, the board acknowledges that uncertainty has increased due to announcements of changes in economic policy by the new U.S. administration. It is expected that the fight against inflation will intensify, seeking to bring it back to its target level of 3%, while valuing the need to adjust the reference rate to face current challenges.
The market estimates that Gabriel Cuadra will align with more interest rate cuts in the future, and even the possibility of new adjustments of the same magnitude was left open. Despite the aggressive cut, the interest rate remains at a restrictive level for the economy, which could affect investments and consumption. Analyst Jonathan Heath was the only one to vote against the cut, advocating for a reduction of only 25 basis points.
