On November 14, 2024, the Bank of Mexico (Banxico) decided to lower its benchmark interest rate by 25 basis points. This marks the third consecutive reduction in recent meetings. The interest rate cut reflects a positive shift in the inflation outlook. Banxico's actions also suggest that further cuts could be on the horizon.
The interest rate cut by Banxico is part of the central bank's broader strategy to control inflation. Lower interest rates are designed to stimulate economic activity by making borrowing cheaper. This decision also shows Banxico’s confidence that inflationary pressures are easing. However, the central bank will continue monitoring economic conditions closely.
Core inflation has decreased steadily, dropping to 3.8% in October. This is a sign that Banxico's efforts to bring down inflation are working. The interest rate cut was made in response to the improving inflation outlook. However, the headline inflation rate remains higher at 4.76%. Despite this, Banxico is determined to reach its inflation target of 3%.
Banxico’s recent interest rate cut suggests that the central bank may lower rates further if inflation continues to ease. Yet, this decision will depend on a variety of factors, such as the stability of the peso and external economic conditions. The bank will carefully assess whether additional cuts are feasible without causing inflation to rise again.
External factors, especially the U.S. presidential election, are important for Mexico's economic future. If the U.S. imposes tariffs or disrupts trade relations, the peso could weaken. This may limit the interest rate cut potential for Banxico, as a weaker peso could drive inflation higher. Thus, the bank's next steps will depend on global economic developments.
Experts are divided on the future of Mexico’s monetary policy. Some analysts expect another interest rate cut of 25 basis points in December. Others, however, believe that accelerating cuts could be risky due to the uncertain global environment. Trade tensions, particularly with the U.S., could have a significant impact on future decisions.
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