Mexico: Central Bank decreases rates in May
Latest bank decision: At its meeting on 15 May, the Central Bank decided to lower the target for the overnight interbank interest rate by 50 basis points to 8.50%, marking the third straight 50 basis-point reduction. The move aligned with market expectations and brought the cumulative reduction since early 2024 to 275 basis points.
Within-target inflation and weak economic outlook prompt cut: Further sizable cuts were motivated by core and headline inflation which are within the 2.0–4.0% target range and should remain so in coming quarters, weak current economic activity, and sizable downside risks to the GDP growth forecast posed by U.S. tariffs.
Central Bank to cut rates further: The Central Bank reiterated that it might continue cutting rates in “similar magnitudes” in future meetings. Our Consensus is for around 100 basis points of cuts by end-2025, with forecasts ranging from 25 to 175 basis points.
Panelist insight: Itaú Unibanco analysts said:
“We continue to expect another 50-bp cut in June. Beyond that, we anticipate a more cautious approach, with two 25-bp cuts in August and September, leading to a terminal rate of 7.5% in 2025.”
Meanwhile, BBVA analysts said:
“A worsening outlook clouded by concerns about the pace of economic activity appear to be weighing heavily on the Board’s judgment in favor of continued easing. If Banxico transitions to a slower 25 bp pace from July onward and cuts at every remaining meeting this year, the policy rate could easily reach 7.00% by year-end.”