The Bank of Mexico (Banxico) has defended the cycle of interest rate cuts amid tariff threats from Donald Trump, despite criticism and warnings from financial markets. During a quarterly conference, central bank officials stated that the current level of monetary policy restriction (6.50%) does not match the overall inflation rate (3.59%) and left open the possibility of further reducing the interest rate by 50 basis points.
Rodríguez Ceja, a member of Banxico, expressed that since inflation is within the target range, there is no longer a need to maintain the previous level of monetary adjustment, although he clarified that this does not mean the fight against inflation is over. Despite a more moderate projection regarding the decrease in inflation by the end of the year, upward risks persist, mainly associated with possible trade policies implemented by the Trump administration, which increases uncertainty in financial markets.
On the other hand, various members of Banxico have also expressed their stance on the situation. Omar Mejía and Galia Borja maintain that the latest rate cut does not imply urgency due to the current level of inflation. Gabriel Cuadra, a new board member, mentioned that a scenario of tariff imposition should not be dismissed, and the possibility of another 50% cut should not be ruled out. Cuadra pointed out that, although theoretically, countries with macroeconomic stability have more room to respond to tariffs, in practice, it will be important to observe inflationary responses in Mexico.
Banxico members agreed that they are not satisfied with the current levels of inflation and recognize that historically they have not achieved the inflation target. Furthermore, the central bank revised down its growth forecasts for the Mexican GDP to 0.6% from the previously anticipated 1.2%, due to reduced investment and consumption slowdown. The decision to cut the interest rate by 50 basis points was not unanimous and included a dissenting vote from Deputy Governor Jonathan Heath, who proposed a cut of only 25 basis points.
Although Banxico officials still require more information to define their position at the next meeting in March, they have made it clear that there is room for another cut. Despite external concerns and warnings about the speed of the cutting cycle, members of the central bank remain firm in their stance on monetary adjustment in line with national economic realities.
