FX.co ★ Banxico Lowers Interest Rate by 50bps, as Expected

On May 15th, the Bank of Mexico reduced its benchmark interest rate by 50 basis points to 8.50%. This decision follows a decrease in annual inflation to 3.93% in April and a modest 0.2% quarterly growth in the domestic economy after previous periods of weakness. The Board has signaled the possibility of further 50 basis point reductions, facilitated by the ongoing disinflation process while still maintaining a restrictive approach. Nevertheless, the central bank exercises caution in light of elevated global uncertainties, including U.S. trade tensions and geopolitical conflicts, which could potentially trigger inflation through peso depreciation or exacerbate an economic slowdown. Although progress is being made toward the 3% inflation target, with expectations to reach this goal by the third quarter of 2026, the Board emphasized the necessity of a flexible policy framework. Such a framework is crucial for managing inflation expectations and ensuring financial stability, especially considering the peso's recent appreciation.