Bank of Mexico Minutes Show Willingness to Discuss Interest-Rate Cuts

Dow Jones
4 hours ago
 

MEXICO CITY -- A majority of Bank of Mexico board members would be willing to consider interest-rate cuts at future meetings if inflationary conditions permit, the minutes of the central bank's September meeting showed Thursday.

The Bank of Mexico kept its benchmark interest rate unchanged at 6.5% on Sept. 24 in a unanimous decision by the five-member board, staying on hold for a third straight meeting following a two-year easing cycle.

The central bank said future rate decisions would be data dependent, taking into account inflation, economic slack and exchange-rate passthrough to consumer prices.

The central bank omitted, however, a phrase from previous statements that it expected to hold the rate at its current level. It also said that the board wouldn't necessarily react "mechanically" to rate increases by the Federal Reserve.

One member said that "a one-off reduction" in the benchmark rate could be considered if conditions continue supporting the disinflationary process, according to the minutes. Another member said the board could assess the possibility of a rate cut "if conditions allow," while a third considered that the board could discuss "making a fine-tuning downward adjustment to the reference rate."

One member called for caution in setting monetary policy, and said the rate should remain at the current level for an extended period. The member said decoupling from U.S. monetary policy will be feasible to the extent that Mexico's inflation approaches the Bank of Mexico's 3% target.

"Otherwise, it might be necessary to start considering the possibility of synchronizing with the U.S. rate-hiking cycle," the member added.

Mexican inflation picked up in August and September on increases in noncore prices that include fresh food and energy, while core inflation has slowed for eight months in a row. Annual inflation stood at 3.45% in September, with core inflation at 3.75%.

The Bank of Mexico expects inflation to reach its 3% target in the fourth quarter of 2027.

Another member expressed concern about the continuing conflict in the Middle East and its impact on energy prices, especially with the approach of the Northern Hemisphere winter, and called for a cautious approach in setting interest rates "to ensure inflation expectations remain firmly anchored."

 
 

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