MNI WATCH: Banxico Keeps Dovish Stance, Reaffirms Restrictive

The Central Bank of Mexico indicated Thursday it intends to keep easing monetary policy steadily after delivering the seventh interest rate cut in a row and the third consecutive 50-basis point reduction. 

"The Board estimates that looking ahead it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes. It anticipates that the inflationary environment will allow to continue the rate cutting cycle, albeit maintaining a restrictive stance," the English version of the statement said.

Banxico cut rates unanimously to 8.50%, while reaffirming its message of ending the cycle at a still-restrictive level. Officials are taking advantage of a window of opportunity as inflation improves — despite a recent rebound — economic activity slows, and the exchange rate remains stable amid ongoing uncertainty surrounding U.S. trade policy.

DOWNSIDE RISKS FOR ACTIVITY

Banxico said the environment of uncertainty and trade tensions poses significant downward risks for activity. (See MNI WATCH: Banxico Expected To Ease 50BP Again To 8.50%)

"Since the previous monetary policy decision, Mexico’s government interest rates decreased, especially those for the short and medium terms. The Mexican peso appreciated, although it traded in a wide range," the document stressed.

"The Mexican economy exhibited weakness again during the first quarter of 2025. It registered a low seasonally adjusted quarterly growth rate of 0.2%, after having contracted in the previous quarter," it added.

The decision highlighted that both headline and core inflation came in at 3.93% in April. "Core inflation accumulated eight consecutive months below 4%, although, at the margin, it increased. Headline inflation expectations for the end of 2025 were revised upwards while those for longer terms remained relatively stable at levels above target," said.

The balance of risks remained tilted to the upside, but the board emphasized that it has improved as global shocks have faded. It also reiterated that changes in U.S. trade policy could imply inflationary pressures on both sides, despite having pointed two paragraphs earlier in the text to the potential impact on economic activity.

"The changes in economic policy by the new U.S. administration have added uncertainty to the forecasts. Their effects could imply inflationary pressures on both sides of the balance."