Amid uncertainty from trade tensions and a cooling domestic labor market, the Bank of Mexico (Banxico) is reinforcing signals for another gradual interest rate cut, dismissing the neutral rate. Most members agreed this scenario will help inflation continue its downward trend, reiterating the 3% target will be met by the end of next year. However, concerns persist as core inflation remains above Banxico's tolerated range. Opinions within Banxico on future monetary policy steps are divided, yet a majority warns of greater economic weakness than anticipated three months ago, reinforcing the market projection for another 25-basis-point rate cut by year-end. At the recent November 6 meeting, Banxico's concerns centered on a more severe economic cooling than expected, persistent core inflation, and the neutral rate range after the latest cut, according to minutes released Thursday. Unlike other meetings, one board member noted that Q3 GDP contraction could lead to 2025 annual growth below the 0.6% forecast and 2026 growth below the 1.1% August projection. They specified that from 2000-2019, the economy expanded an average of 1.8% annually. "This would be significantly below the average growth Mexico's economy has recorded this century," they stated. In this context, Deputy Governor Jonathan Heath was particularly emphatic, warning against signaling further cuts without total confidence this component is under control. Recall Heath has maintained his stance for a pause in rate cuts in the last two votes, warning that monetary easing could be premature. Another observed position supporting caution is the interest rate restriction level, as some officials warned it may be approaching neutral territory, where central bank actions would no longer curb inflation. Beyond these elements, most of the board signaled evaluating the cycle's pace with gradualism, aligning with market expectations that the rate will reach 7% by year-end.
