Banxico CUTTING DOWN its interest rate cuts

Banxico reduces its interest rate cuts.

After four consecutive half-point cuts, the Bank of Mexico (Banxico) slowed the pace of downward adjustments by 25 basis points, with which the interest rate went from 8% to 7.75 percent.

This level of monetary restriction , to contain rising consumer prices, is similar to that in place in June 2022, when inflationary shocks stemming from the pandemic, a surge in COVID-19 cases in China, and headline inflation in our country stood at 7.88%.

This was announced by the Mexican central bank in its Monetary Policy Announcement following its Board of Governors meeting on Thursday, following the July inflation report released this morning by INEGI (National Institute of Statistics and Census), which highlights a slowdown from 4.32% to 3.51%, marking a two-month decline.

With today's cut, the rate used to determine the cost of borrowing has reached five points so far this year: four by 50 points and one by 25 points. Banxico has cut the rate cumulatively nine times since August 2024.

Interest rate cuts will be smaller

On this occasion, the market and most analysts had already expected the Central Bank to make a smaller reduction in the monetary tightening.

Recently, Banxico Governor Victoria Rodríguez Ceja told bankers during the Associates Committee luncheon that while they would consider additional cuts to the reference rate , in her opinion, "such movements would be smaller than those observed so far."

This is in line with the forward-looking guidance included in the monetary policy announcement of June 26, which stated that the Governing Board would consider additional cuts going forward, but did not indicate any consideration of adjustments of a similar magnitude to the previous ones, i.e., 50 points.

The Mexican central bank has been cutting its interest rates for a year, in contrast to the U.S. Federal Reserve's (Fed) policy, which has kept them unchanged for the fifth consecutive time.

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