The financial market is preparing for a new cut of 50 basis points on March 27, regardless of any trade actions taken by the White House that may impact Mexico. Two members of the board of directors of the Bank of Mexico have mentioned their intention to vote in favor of lowering the interest rate in March, as noted in the Banxico minutes.
The central bank argues that inflation has fallen within the target range and that the Mexican economy is slowing down. There is concern in the market about a possible impact on the exchange rate and inflation if Trump's threats to impose tariffs on the country materialize.
Despite these upward pressures, Banxico believes there are conditions that could lead to downward pressure on inflation due to slack in the economy. The institution's analysis is more pessimistic than that of the government, and weakness in the economy is expected to persist in the coming quarters.
Banxico officials defend interest rate cuts by arguing that inflation has decreased and that, so far, tariffs have not been applied. Furthermore, they point out that the gap of the real rate is greater than that of inflation, which justifies further cuts.
The minutes highlight that in the next meeting, a new cut of 50 basis points could be considered, although it does not necessarily imply cuts of the same magnitude throughout the rest of the year. The goal is to maintain the interest rate at restrictive levels.
Market projections indicate that the Bank of Mexico will repeat the cut in March, and the rate is expected to close the year at 8.25%. The most recent economic data supports the idea that inflation will not rebound and that the economy will continue to show weak performance at the beginning of 2024.
