Banxico Set to Cut Interest Rate Amid Economic Shifts

Mexico’s central bank, Banxico, is poised to make its third consecutive interest rate cut this Thursday. Bank of America Securities (BofA) predicts a 0.25 percentage point reduction, lowering the rate to 10.50%.

This move marks a significant shift in Mexico’s monetary policy. It continues the normalization cycle that began in March 2024. The cumulative cut will reach 0.75 percentage points since the peak rate of 11.25%.

BofA experts believe conditions are ripe for this decision. They anticipate a 4-1 majority vote, with a possibility of unanimous agreement among Banxico’s governing board. This forecast reflects growing confidence in the direction of Mexico’s economy.

Several factors support this rate cut. The core inflation rate has been steadily declining, reaching 4% in August after 19 consecutive months of decrease. This trend suggests improving price stability in Mexico’s economy.

Additionally, Mexico’s economic growth has shown weakness for four straight quarters. BofA Securities warns that GDP may continue to moderate. They cite concerns about reduced investments due to constitutional reforms and expected fiscal consolidation.

The global economic context also plays a role. The U.S. Federal Reserve’s recent rate cut provides Banxico with room to maneuver. This alignment with international trends supports Mexico’s monetary policy decisions.

Looking ahead, BofA Securities projects further gradual but sustained rate cuts. They expect the policy rate to reach 10% by year-end and 8.25% by the end of 2025. However, they acknowledge the possibility of faster cuts.

Banxico Set to Cut Interest Rate Amid Economic Shifts

Other experts offer similar predictions. Pamela Díaz Loubet from BNP Paribas agrees with the 10% year-end forecast. She expects the rate to hit 8% next year, slightly lower than BofA’s projection.

Díaz Loubet adds an important long-term perspective. She suggests that Banxico’s restrictive stance may continue “for a long time.” The neutral rate, where monetary policy no longer impacts inflation, might not be reached until 2026.

These projections highlight the careful balance Banxico must strike. They must address current economic challenges while preparing for future stability. The upcoming decision will be a crucial step in this ongoing process.

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