Banxico Cuts Interest Rate to 9% Amid Trade Tensions

The Bank of Mexico, known as Banxico, has decided to make a new adjustment to the benchmark interest rate, lowering it by 50 basis points right in the midst of warnings from the U.S. government about potential tariffs. All members of the central bank's Board of Governors voted in favor of lowering the rate to 9%, and they have indicated that they could continue to adjust monetary policy similarly in the future.

According to Banxico, "the Board of Governors determined that the disinflation process is on track and reaffirmed that the fight against inflation is at a moment where efforts will focus on reducing it to levels aligned with its historical averages prior to the pandemic, targeting 3%." In the first half of March, inflation was at 3.67%, which facilitated this reduction by the central bank. Inflation has remained within Banxico's target range for six consecutive fortnights. The slowing economy, along with trade tensions with the United States, have led international organizations such as the OECD to revise their growth forecasts for Mexico downward. The economy is expected to contract by 1.3% this year, while institutions like Banamex, UBS, and Banco Base warn that growth is not anticipated. "With the interest rate reduction, Banxico aims to incentivize investment and consumption to mitigate these negative impacts; however, it must proceed with caution to avoid creating shifting or inflationary imbalances in a landscape of economic uncertainty," says Eduardo Ramos, market analyst at VT Markets.

It is vital for the Bank of Mexico to maintain a balance in its monetary policy, as the goal of fostering growth and investment should not come at the expense of long-term financial stability. Caution and vigilance against potential inflationary risks are key in this highly volatile context, especially when facing an uncertain international environment.