Mexico signals room for rate cuts as growth cools and inflation risks ease

Deputy Governor Jonathan Heath says Mexico’s central bank still has an opportunity to decrease its benchmark interest rate.

In a Banorte podcast published Wednesday, Heath stated that declining economic activity and falling inflationary pressures justify a less restrictive monetary policy.

Last month, the Bank of Mexico cut its interest rate by 50 basis points to 9% in a unanimous vote.

Despite the decrease, the board emphasised that persistent global trade tensions are causing increased uncertainty.

Heath shared this sentiment, stating that the slowdown is noticeable not only in Mexico but also in the United States, Mexico’s greatest trade partner.

Heath said the central bank anticipates an economic slowdown in both Mexico and the United States under all projected scenarios.

Indicators such as industrial production and business confidence have already declined, implying a widespread cooling.

Inflationary pressures are easing amid economic stagnation

Heath underlined that a slow economy usually results in lower inflationary pressures, allowing the central bank to pursue a more flexible policy.

Mexico’s inflation has remained at a level that allows the central bank to lower interest rates without causing price volatility.

Heath noted that, despite external threats such as US tariffs and persistent geopolitical instability, a big inflation increase is unlikely in the foreseeable future.

“We’re still taking a restrictive monetary stance, but less and less restrictive than previously expected,” he added.

The central bank’s latest policy moves demonstrate this more adaptable approach.

While being cautious, the bank has indicated that rate reductions are still on the table as long as inflation is under control and economic indicators continue to move downward.

Caution for the second half of the year

Despite the potential for further rate reduction in the medium term, Heath warned that the second half of the year will require a more cautious approach.

As the global economic situation remains fragile and trade-related risks exist, any additional monetary easing must be calibrated against potential inflationary dangers.

Heath’s remarks come at a time when Latin American central banks are balancing assistance for growth and anchoring inflation expectations.

Mexico, with its tight linkages to the US economy and exposure to global trade dynamics, is especially vulnerable to external shocks.

The deputy governor’s comments indicate that, while additional relaxation is possible, it will not be automatic.

Decisions will be based on shifting economic data, both domestic and international, as the bank strives to manage inflation risks without strangling growth potential.

Policy outlook: flexible yet watchful

The central bank’s next moves will be widely monitored by markets and investors, especially as global uncertainty continues to weigh on emerging economies.

For the time being, Heath’s statement signals that future rate cuts are possible if inflation remains low and economic weakness intensifies.

However, the tone from Banxico remains cautious. With a complex second half of the year ahead, monetary officials are expected to tread carefully, ensuring that any relaxation of policy does not undermine long-term price stability.

In the coming months, all eyes will be on inflation data, industrial performance, and global trade developments as Mexico’s central bank determines its next steps in a changing economic landscape.

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