Mexico: Central Bank decreases rates in December
Latest bank decision: At its meeting on 19 December, the Central Bank decided to lower the target for the overnight interbank interest rate by 25 basis points to 10.00%. Interest rates have now fallen by 125 basis points since early 2024.
Monetary policy drivers: The key domestic factors influencing the Central Bank’s decision were clear downtrends in headline and core inflation in recent months, slowing employment, and weak economic prospects for the coming year.
Policy outlook: The Central Bank indicated that it expects the inflationary environment to permit further reductions in the policy rate in the future, and also hinted at cutting by more than 25 basis points per meeting. Our Consensus is currently for close to 200 basis points of further cuts by end-2025. U.S. tariffs are the key risk factor: If implemented, the Bank would likely speed up its easing cycle.
Panelist insight: On the near-term outlook, Itaú Unibanco analysts said:
“Our base case remains for the central bank to accelerate its pace in the first meeting of 2025, cutting the monetary policy rate by 50-bp on February 6th.”
BBVA analysts said:
“The statement’s forward guidance signals that a string of consecutive rate cuts is set to continue ahead and opens the door for considering larger cuts at some meetings. The risks to our end-2025 8.00% below-consensus forecast for the policy rate could even lie to the downside, not to the upside, if tariff risks materialize. They would hit economic activity and the effect of an exchange-rate pass-through would be more than offset by weaker demand amid easing core inflation.”