MNI WATCH: Banxico To Cut 50BP Amid US Tariff Uncertainty

The Central Bank of Mexico is expected to reduce its overnight interbank interest rate again by 50 basis points to 9.00% on Thursday, marking its sixth consecutive rate cut against a backdrop of continued heightened uncertainty surrounding U.S. trade policy.

Banxico Deputy Governor Jonathan Heath, who dissented in favor of a smaller rate cut at the February meeting, told MNI in an interview last month that the board needs to exercise caution when setting rates given the risk of U.S. tariffs, which, if imposed, could affect future monetary policy decisions. (See MNI INTERVIEW: Trump Means Banxico Must Be Cautious -Heath)

Banxico accelerated the pace of interest rate cuts at its February meeting, reducing its overnight interbank benchmark by 50 basis points to 9.50% and signaling similar cuts at upcoming meetings, though Heath dissented in favor of a smaller 25bp cut.

NOT TIED TO 50BP CUTS

Banxico Deputy Governor Galia Borja also told MNI in an interview that the central bank is not necessarily set for multiple repeats of this month’s 50-basis-point rate cut, as it weighs both upside and downside price risks from potential U.S. tariffs while seeking the necessary level of restriction to bring inflation to target in a slowing economy. (See MNI INTERVIEW: Banxico Not Tied To Multiple 50BP Cuts-Borja)

She emphasized that the board is not "comfortable" with the current level of inflation, which remains slightly above the 3% target. (See MNI INTERVIEW2: Banxico Not Comfortable With Inflation - Borja)

U.S. President Donald Trump has once again agreed to postpone the implementation of a 25% trade tariff on all products covered under the USMCA for one more month, until April 2, following negotiations.

Despite concerns over trade policy, the Mexican peso has been performing well, remaining around 20 per U.S. dollar, down from the stronger level of 20.73 on March 3.

Mexico’s INPC annual inflation rose to 3.77% in February, up from 3.59% in January, while core inflation was 3.65%, little changed from 3.66%. With inflation remaining close to the target, expectations for additional rate cuts this year have strengthened.