The Bank of Mexico (Banxico) decided to cut its interest rate to 6.75%, a reduction of 25 basis points, contrary to market expectations and the recommendation of most analysts. This decision was made despite inflation showing signs of pressure and amid risks from the conflict in the Middle East. At the country's bank exchange windows, the free dollar—the one sold to the general public—ended the day with a maximum price of 19.08 pesos and a minimum of 17.36 pesos per unit. The message was clear: the market sees weakness in the Mexican economy. However, the cut in Banxico's interest rate raised another concern, as the market now faces more doubts about inflation and how firm the peso can remain in the coming days. According to the Director of Economic Analysis at the BASE Financial Group, Gabriela Siller Pagaza, the peso's depreciation was due to 'the decision of the Bank of Mexico (Banxico) to cut the interest rate by 25 basis points to 6.75%, against the market's expectation and the recommendation of the majority of analysts.' She indicated that through a statement, Banxico recognized that inflation has accelerated and the outlook has become more uncertain due to the war in the Middle East. It was not the global market nor a rumor: a direct decision by the Bank of Mexico (Banxico) changed the direction of the exchange rate in a matter of minutes. This Thursday, Banxico cut its interest rate to 6.75%, with a 25 basis point drop that surprised the market and pushed the dollar to 17.95 pesos. The dollar shot up and the peso suffered immediately. On this occasion, the Central Bank anticipated that 'they will evaluate the appropriateness and the moment of making additional cuts,' indicating that they will make at least a pause in the next announcement on May 7. Gabriela Siller highlighted that the decision to cut the interest rate was not unanimous, as two Banxico deputy governors: Jonathan Heath and Galia Borja, voted to keep the interest rate unchanged. 'In fact, among the upside risks for inflation, first are the disruptions from trade policies and the inflationary impact from geopolitical conflicts.' The prospective guide was also modified, as it no longer states that they will evaluate interest rate cuts.
