Banxico Signals Possible Final Rate Cut as Inflation Expected to Resume Decline

On April 28, Governor Victoria Rodríguez told a Senate committee that the Bank of Mexico expects inflation to resume a gradual decline toward its 3 % target, despite a recent jump in fruit and vegetable prices. The central bank indicated that it may consider a final interest-rate reduction at its May policy meeting.

ReutersBanxico Says Inflation Should Cool, Signaling One Last Rate Cut

Governor Victoria Rodríguez has overseen a rate-cutting cycle that began in early 2024. In March, the board lowered the benchmark rate by 25 basis points to 6.75 %. Minutes from that meeting reveal a deep split among board members, who weigh fears of a resurgence in inflation and geopolitical tensions in the Middle East against the need to support a sluggish domestic economy.

Reuters

Annual consumer-price inflation measured 4.53 % for the first half of April, a slowdown from the March surge but still outside Banxico’s comfort band of 3 % ± 1 percentage point. The most recent price pressure stemmed primarily from higher costs of fruits and vegetables, a temporary factor that the governor expects to ease.

Banxico Says Inflation Should Cool, Signaling One Last Rate Cut

In her address, Rodríguez emphasized that the bank’s primary objective remains anchoring inflation at the 3 % goal while avoiding a sharp slowdown for the economy. She indicated that the board will assess whether a single additional cut in May is warranted. The central bank’s internal debate reflects concerns that renewed inflationary pressures, amplified by external shocks such as the Middle East conflict, could clash with the need to sustain growth in a weak economic environment.

Reuters

• “53% in the first half of April, still above Banxico’s comfort zone of 3% plus or minus 1 percentage point.” — Victoria Rodríguez, Governor, Bank of Mexico

Banxico Says Inflation Should Cool, Signaling One Last Rate Cut

The May policy meeting will determine whether Banxico lowers the benchmark rate further from its current 6.75 %. A final cut would aim to support the slowing economy while keeping inflation expectations anchored near the 3 % target. The central bank will continue monitoring food-price dynamics and external risks, using the decision as a test of its ability to guide the economy back toward the target without reigniting price pressures.

Reuters