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. This decision, however, is complicated by the growing uncertainty surrounding US trade.
The final decision will be subject to the conditions present at the time of the meeting. The bank has been cutting rates by 25 basis points since the start of an easing cycle earlier this year. Last week it showed a willingness to consider further cuts as inflation continues to slow.
Heath expressed concern about the possibility of tariffs being imposed on U.S. imports from Mexico, adding another layer of uncertainty. In November 2024, President-elect Donald Trump pledged to impose a blanket 25% tariff on products from Mexico if more measures are not taken to stem the flow of drugs and migrants to the United States.
Heath said on Monday that if Trump does not announce a major disruption during his inauguration speech on January 20, 2025, if inflation aligns with projections, and barring unforeseen shocks, the pre-decision discussion in February could involve cut the reference rate by 25 to 50 basis points.
The decision, according to the 70-year-old economist, will also depend on factors such as the economic outlook, the opinions of rating agencies and more information on services inflation, which has remained persistently high.
Despite the possibility of a discussion on a rate cut, Heath clarified that a larger adjustment is not guaranteed. He also completely ruled out any cut more than 50 basis points from the current 10% rate. The decision may not be unanimous among board members as they differ over the speed and size of rate cuts needed to bring inflation back on target.
Heath suggested that a benchmark rate between 8% and 8.5% at the end of 2025 is reasonable, but a variety of factors could influence this.
Analysts surveyed by the central bank project that the Mexican economy will grow 1.12% in 2025, up from around 1.6% in 2024. They anticipate that headline inflation will close 2025 at 3.8%, a decline from 4.37% at the end of 2024.
The expected slowdown is attributed to private sector caution due to an uncertain and high-risk environment, and tight fiscal policy as the government attempts to control the deficit. Heath said the longer the slowdown lasts, the more likely it will be that the inflation target will be met within the estimated timeframe, leading to further rate cuts until a neutral stance is achieved.
By 2026, assuming Mexico avoids any negative shocks, Heath predicts inflation will be around 3%, the monetary stance will be neutral, and the economy will be in a solid expansion phase.
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