Mexico's Monetary Shift: Unpacking the Rate Cuts

Mexico's central bank reduced its interest rate by 25 basis points to 10.00%, indicating potential for larger cuts due to inflation progress. The unanimous decision marks the fifth cut this year, aligning with the U.S. Federal Reserve's recent move. Concerns remain over Mexican peso volatility and U.S. tariffs.

Mexico's central bank, also known as Banxico, has decreased its benchmark interest rate by 25 basis points to 10.00%. The move, which signals potential for further reductions, comes as inflation shows signs of progress in Mexico's economy, the second largest in Latin America.

This decision, which marks the fifth rate cut of the year, coincides with a similar reduction by the U.S. Federal Reserve, emphasizing a broader trend in monetary policy. Analysts had expected a 25-bps cut due to November's annual headline inflation slowing to 4.55%, slightly below expectations, affirming the central bank's strategy.

Despite ongoing reductions in both headline and core inflation rates, concerns linger. The Mexican peso's instability and potential U.S. tariffs under President-elect Donald Trump pose risks. Analysts suggest Banxico may maintain a cautious approach, continuing rate cuts in measured 25bp increments to navigate fiscal uncertainties.

(With inputs from agencies.)