Mexico Cuts Interest Rate by 0.25%P to 11%... First Time in 3 Years

by Cho Seulkina

Published 22 Mar.2024 06:33(KST)

Mexico's central bank, Banxico, has cut interest rates for the first time in three years.

Banxico announced on the 21st (local time) at its monetary policy meeting that it would lower the benchmark interest rate by 0.25 percentage points from 11.25% to 11%. This is Banxico's first rate cut since February 2021. The decision was made with four out of five committee members in favor, while one member advocated for maintaining the rate.

[Image source=EPA Yonhap News]

In its monetary policy statement, Banxico explained, "Inflation has shown a downward trend, converging toward the target range (3% ± 1 percentage point)," and added, "The decision on the rate cut was made based on the judgment that challenges and risks remain, requiring cautious monetary policy management."

However, it emphasized that the monetary policy stance remains restrictive and that decisions at the next meeting will depend on newly obtained data, leaving the possibility of maintaining the current rate open.

This rate cut was widely anticipated. Mexico's inflation rate, which had surged to 8.7% in 2022, eased to 4.4% in February. Accordingly, the market strongly expected Banxico to lower rates at this meeting. Jason Tuvey, Emerging Markets Economist at Capital Economics, interpreted, "Recent inflation and economic activity data, along with the Federal Reserve's dovish signals the previous day, pulled the trigger."

Since last year, monetary easing has continued in Latin America, with Brazil cutting rates further the day before. Colombia is also expected to lower rates at its meeting on the 22nd.