Banxico to Continue Rate Cuts Despite Federal Reserve's Caution

Although the Federal Reserve of the United States has expressed its intention to make more moderate adjustments to its interest rates, the Bank of Mexico (Banxico) has enough flexibility to continue making cuts. Banxico is expected to end 2024 with an interest rate of 10%, and in 2025, its directors will meet eight times to consider further cuts. It is estimated that by the end of 2025, the rate will be between 8% and 8.50%.

However, it is not a rule that the Fed's movements automatically reflect in the decisions of Mexico's central bank; nevertheless, the actions of its American counterpart are considered when making adjustments to the reference rate. "This is a critical aspect, as the Board of Governors considers what the Fed does as a relevant element in Mexican monetary policy, although it should be noted that the margin between the rates is considerable," commented Julio César Ruiz, Chief Economist at Citi Mexico. Additionally, the expert pointed out that even if the Fed makes fewer cuts than anticipated, Banxico has the capacity to maintain a high interest rate differential. Analysts at Grupo Financiero Ve por Más warn that both internal and external factors in Mexico could increase financial volatility, making it advisable to maintain this wide margin between Banxico and the Fed. It is believed that the resolution of potential changes in tariff policy by Republican Donald Trump when he assumes the presidency of the United States will provide more clarity on the decisions that central banks will make.

The current market situation reflects the complexity of monetary decisions. It is crucial for Banxico to maintain a balance between its internal policies and external impacts, as well as to adapt to the geopolitical realities that may affect the Mexican economy. Caution in financial decisions will not only help avoid volatility, but also promote a more stable environment for long-term growth.