The Bank of Mexico (Banxico) reported that its Board of Governors unanimously decided to reduce the objective for the overnight Interbank Interest Rate by 25 basis points, so things from 10.25% to a level of 10%, with effects starting December 20, 2024.
It is the fourth consecutive cut that Banxico has made to the reference interest rate and of the same magnitude.
According to the central bank’s monetary policy announcement, for the decision to reduce the interest rate, the Banxico Governing Board took into consideration that general inflation was reduced from 4.76% to 4.55% between last October and November.
Banxico explained that although inflation still suffers from the supply shocks that have affected the non-core component, core inflation, which better reflects the inflation trend, extended its clear downward trend, going from 3.80% to 3.58% in the same period.
Furthermore, merchandise inflation is at low levels, while the services category has decreased only moderately; Thus, inflation expectations for the end of 2024 were reduced, those for the end of 2025 and those for the longer term remained relatively stable at levels above the target, 3%.
In this context, the Banxico Governing Board continues to expect that general and underlying inflation will show a downward trend going forward, but considering a greater persistence in services inflation, these forecasts were revised upwards and it is now expected that the general inflation converges to the target in the third quarter of 2026.
Risks
Banxico warned that the possibility of tariffs being implemented on United States imports from Mexico has added uncertainty to inflation forecasts and their materialization could imply pressures on inflation on both sides of the balance sheet.
Additionally, the forecasts are subject to the following risks: persistence of underlying inflation; greater exchange rate depreciation; increased cost pressures; climatic effects; and disruptions due to geopolitical conflicts or trade policies.
National economic activity
The Governing Board also evaluated that after the marked weakness that the economy exhibited in the previous three quarters, in the third quarter of 2024 it presented a higher rate of expansion; However, it is expected to show slackness at the end of the year and the next.
In the labor market, employment has slowed. The balance of risks for economic activity remained biased downwards.
Financial markets in Mexico
Banxico pointed out that since the previous monetary policy decision, in Mexico the interest rates on short-term government securities decreased, while those of medium and long terms presented upward movements and after the depreciation of the national currency due to the possibility of that measures be implemented that weaken integration with the United States, the main trading partner, this was appreciated.
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