Mexico Macro Monitor: Banxico prioritizes support for economic slowdown vs. controlling inflation

MEXICO - In Brief 01 Apr 2025 by Mauricio González
Banxico (Mexico's Central Bank) decided to lower its target interest rate to 9%. This confirms that the central concern of the Governing Board is that the ex-ante real interest rate remains too high, and it appears to prioritize economic recovery over inflation control—the latter being its primary mandate. Consumer inflation has declined in recent months, but this is due to the drop in the non-core component. Since last November, consumer inflation has fallen by 86 basis points (bps), while core inflation remains unchanged. Services-related core inflation has decreased by 70 bps (attributable more to economic slowdown than restrictive monetary policy), while goods-related core inflation rose by 59 bps, returning to September 2023 levels.                                         Graph 1Core inflation: General, Goods and Services 2024-Q1 Mar 2025 (%)                                              Source: Data FxRates® and Banxico, Analysis GEA Grupo de Economistas y Asociados It is likely that goods-related core inflation will continue to rise due to the peso's depreciation, which quickly increases costs for producers, who then attempt to pass them on to consumers. Cutting the interest rate overlooks the risk that consumer inflation could rebound in three or four months, putting Banxico in a difficult position, as it would be reluctant to raise rates again 2025 0401 Mexico Macro Monitor Banxico Monetary Policy Decision

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