Banxico Changes Course: Focus on Economic Growth
Inflation has ceased to be the main concern of the Bank of Mexico (Banxico); now its focus is on boosting economic growth amid uncertainty in trade. This Thursday, Banxico adjusted the interest rate to 9%, and analysts are anticipating a further cut of 50 basis points in May. For the decisions to be made in June and August, the reduction could be more modest, depending on the impact of tariffs imposed by Donald Trump.
Analysts highlighted the unanimity of the Central Bank’s Board of Governors in deciding to lower the rate, which represents a significant shift, especially since there was a consensus on the need to ease monetary conditions. Remember that in February, Deputy Governor Jonathan Heath spoke out against the 50-point reduction. Víctor Ayala, chief economist at Finamex, noted that, given the economic cycle, the Mexican economy is expected to generate lower demand pressures on prices in the coming months. Various international organizations and financial entities have downgraded their growth expectations for Mexico's Gross Domestic Product (GDP). The OECD estimates that the tariffs could cause a contraction of 1.3%, while the more optimistic projections from Banamex, UBS, and Banco Base point to zero growth. The Ministry of Finance and Public Credit maintains its forecast between 2% and 3%. With the economy trending downward, Banxico has more room to reduce rates. While inflation shows improved behavior, experts warn that the underlying component will face challenges, particularly in the realm of goods. "Although services remain high, they could decrease more quickly due to reduced pressures on aggregate demand resulting from the slowdown," said Intercam. Since the fourth quarter of 2024, the Mexican economy has shown weak signs of growth. Throughout the second half of the year, Banxico's moves will depend on the direction taken by the Federal Reserve in the United States, which is expected to implement cuts of 25 basis points, and on the guidelines presented by the Ministry of Finance in the Preliminary Criteria for 2026, scheduled for April 1. If the Ministry of Finance does not adjust its projections, rating agencies could take measures that jeopardize the country's sovereign rating. Analysts at Finamex estimate that the interest rate will close the year at 8%, while Banamex and Banorte believe the central bank could drop it to 7.25%.
It is crucial for both Banxico and the Ministry of Finance to stay alert to changes in the global and local economic environment. Swift adaptation to these challenges and appropriate adjustments in fiscal and monetary policies are vital to maintaining economic stability and investor confidence. In times of uncertainty, proactivity can make a significant difference in achieving sustainable long-term growth.
