Banxico Cuts Interest Rate to 10.5%
This Thursday, Bank of Mexico, Banxico, announced a new cut to the benchmark interest rate, bringing it down to 10.5%. This decision was the result of a vote in which the majority of the Board of Governors expressed their support. Galia Borja, Omar Mejía, Irene Espinosa, and Governor Victoria Rodríguez backed the rate reduction, while Jonathan Heath advocated for keeping it unchanged.
The Board of Governors of the central bank also maintained its outlook on inflation, indicating that there are still upward risks due to core inflation, the depreciation of the peso, and cost pressures. In its statements, the bank emphasized how it has been assessing inflation and the factors influencing it, as well as future expectations. Despite the shocks that have impacted non-core inflation, the Board believes these effects will diminish in the coming quarters, potentially leading to further cuts in the interest rate due to the effects of a weaker economy. Short-term inflation forecasts are more optimistic, with expectations to reach the 3% target by the fourth quarter of 2025. Recently, inflation fell to 4.66% in the first half of September, thanks to a significant slowdown in the prices of agricultural products like oranges, tomatoes, and avocados. According to analysts, lower economic momentum in Mexico will contribute to the slowdown in inflation, especially considering a cut in government spending for the next year. CI Banco warned that GDP growth in the first half of the year was disappointing, increasing the risk of a potential technical recession in the upcoming quarters.
Impact of Banxico's Rate Cut on Savers and Borrowers
In recent years, various financial applications have launched savings and investment accounts that offer attractive returns. However, with the decision made by the Bank of Mexico, these entities will need to adjust their rates starting in October, which will result in lower returns compared to what was previously offered. Even the Cetes, considered one of the safest investment methods in the country, will be affected and will also reduce their yields, as they are aligned with Banxico's benchmark rate. For those contemplating taking out a loan, the decrease in the benchmark rate is favorable since banks tend to lower their loan rates, especially benefiting mortgage loans.
In a context where the Mexican economy is facing significant challenges, it is crucial for both savers and borrowers to maintain a cohesive financial strategy. Considering investment options, even if yields are lower, may be essential to protect capital against inflation. Additionally, informed decisions about credit can make a difference in personal financial health in the long term.
