The Governing Board deemed it appropriate on this occasion to continue the cycle of reductions in the reference rate. This is in line with the assessment of the current inflationary panorama, it announced in its communiqué this Thursday. The decision was not unanimous. Deputy Governor Jonathan Heath, as expected, voted to keep the rate unchanged, a position to which Deputy Governor Galia Borja also joined on this occasion. Banxico's move is on tricky ground, as it faces some market criticism regarding its credibility, while in recent days the pressure from officials in Sheinbaum's government to cut the rate has increased, as LPO reported, citing people close to these discussions. Despite the inflation data, the Palace increases pressure on Banxico for another rate cut. Banxico defended the Thursday cut due to the observed levels of the exchange rate, the weakness that economic activity has shown, and the degree of monetary restriction that has been implemented. Additionally, it minimized geopolitical risks: 'The Governing Board judged that the monetary stance reached would be appropriate to face the challenges derived from a prolongation and escalation of the conflict in the Middle East and its repercussions,' it noted. But at the same time, the central bank acknowledged that there are inflationary risks for the first part of the year due to geopolitical and trade issues, cost pressures, climate, and the depreciation of the peso. In that scenario, in its future guidance, they left open the possibility of only one more cut this year: 'As the evolution of macroeconomic and financial conditions warrants, the Governing Board will evaluate the pertinence and timing of carrying out an additional cut to the reference rate,' says its communiqué. Bankers believe Banxico will stop cutting rates. The market consensus pointed to Banxico pausing the cuts again as it did in February due to a more adverse inflationary panorama after the inflation rebound to 4.6% in the first half of March, exceeding the central bank's target range. Furthermore, upside risks persist due to local fiscal burdens such as tariffs on countries without a trade agreement with Mexico and the Iran conflict, which has increased international crude oil and fertilizer prices. Nevertheless, specialists' positions were divided given signals that Banxico officials had given prior to this vote in favor of a cut. The Bank of Mexico (Banxico) cut the interest rate by 25 basis points to 6.75%, despite the recent inflation rebound and against market expectations, which had anticipated a pause in the monetary cycle.
