Banxico’s Governor Rodriguez: Considering rate cut since September – El Financiero

Banxico Governor Victoria Rodriguez Ceja has revealed that the Mexican central bank has been contemplating rate cuts since September. Recently, Banxico unexpectedly decreased interest rates by 25 basis points, from 6.50% to 6.25%, following a 3-2 vote split. Deputy Governors Galia Borja and Jonathan Heath voted to maintain the rates.

The inflation rate continues to rise, despite staying within the 3% plus or minus 1% range. Rodriguez emphasized that exchange rate fluctuations have a limited impact on consumer prices due to the free-floating regime in Mexico. She stated that keeping the interest rate at its current level of 6.25% for an extended period will help bring inflation back to the target and address external macroeconomic challenges.

The Bank of Mexico, or Banxico, is the country's central bank responsible for preserving the value of the Mexican Peso (MXN) and setting monetary policy. Its primary goal is to maintain low and stable inflation close to the target of 3%, within a tolerance band of 2% to 4%. The Banxico primarily uses interest rates to guide monetary policy.

When inflation surpasses the target, the bank raises rates to curtail it, making borrowing more expensive for households and businesses. Higher interest rates generally benefit the MXN as they result in higher yields, making the country more attractive to investors. Conversely, lower interest rates weaken the MXN. The rate differential between Banxico and the US Federal Reserve (Fed) is a critical factor.

Banxico meets eight times a year, and its monetary policy is significantly influenced by the Fed's decisions. The central bank's decision-making committee typically convenes a week after the Fed, allowing Banxico to react and sometimes anticipate the Federal Reserve's monetary policy measures.