Investing.com – Mexico's central bank is considering a rate cut of 25 or 50 basis points in its next decision in February 2025, according to Deputy Governor Jonathan Heath. But this decision is complicated by growing uncertainty surrounding US trade.
The final decision will be conditional on the circumstances existing at the time of the meeting. The bank has cut interest rates by 25 basis points since the start of the easing cycle earlier this year. He showed his willingness last week to consider deeper cuts as inflation continues to slow.
Heath expressed concern about the possibility of tariffs being imposed on US imports from Mexico, adding another layer of uncertainty. In November 2024, President-elect Donald Trump pledged to impose a comprehensive 25% tariff on goods coming from Mexico if more action was not taken to reduce the flow of drugs and migrants into the United States.
Heath said Monday that if Trump does not announce a major disruption during his inaugural address on January 20, 2025, and if inflation is in line with expectations, barring any unforeseen shocks, the discussion before the February decision could include a 25-point interest rate cut. to 50 basis points.
The decision, according to the 70-year-old economist, will also depend on factors such as the economic outlook, the views of rating agencies, and more information on services inflation, which has remained stubbornly high.
Although a rate cut may be discussed, Heath made clear that a larger adjustment is not guaranteed. He also ruled out any cut greater than 50 basis points from the current interest rate of 10% as completely out of the question. The decision may not be unanimous among board members, as they disagree on the speed and size of interest rate cuts needed to return inflation to the target level.
Heath noted that a reference rate of between 8% and 8.5% at the end of 2025 is reasonable, but a variety of factors could affect this.
Analysts polled by the central bank expect the Mexican economy to grow 1.12% in 2025, down from about 1.6% in 2024. They expect headline inflation to close 2025 at 3.8%, down from 4.37% at the end of 2024.
The expected slowdown is due to caution on the part of the private sector due to the uncertain and high-risk environment, and tight fiscal policy as the government tries to control the deficit. Heath stated that the longer the slowdown continues, the more likely it is that the inflation target will be achieved in the estimated time frame, leading to a further decline in the price until a neutral position is achieved.
By 2026, assuming Mexico avoids any negative shocks, Heath expects inflation to reach around 3%, the monetary stance will be neutral, and the economy will be in a phase of strong expansion.
This article was created with the power of artificial intelligence and reviewed by an editor. For more information, see our terms and conditions.
