The Banco de México (Banxico) cut interest rates by 50 basis points (bps), aligning with analysts’ expectations. However, the decision was not unanimous, as Deputy Governor Jonathan Heath dissented, favoring a more modest 25-bps cut.
Key Policy Insights
- Future Rate Cuts Possible: Banxico signaled that further 50-bps cuts could be considered in upcoming meetings, though it emphasized maintaining a restrictive stance to ensure inflation stability.
- Inflation Outlook: The central bank expects headline inflation to reach its 3% target by Q3 2026 but remains cautious due to persistent upside risks.
- Impact of Tariff Uncertainty: The Mexican Peso (MXN) initially weakened following US-Mexico tariff concerns but later rebounded after both nations agreed to a pause in tariff measures.
Market Implications
The rate cut aligns with Banxico’s strategy of gradual policy easing, but continued vigilance on inflation risks and trade tensions will shape future monetary decisions. The Mexican Peso’s volatility highlights the market’s sensitivity to US trade policies and economic adjustments.
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