Monetary policy to be loosened by Banxico, as indicated.
Despite the Bank of Mexico (Banxico) reducing the benchmark interest rate aggressively, the outlook for inflation remains complex with upside risks, deviating from the 3% target, according to economic research group Ve por Mas (Bx+).
Alejandro Saldana, Bx+'s chief economist, warned that Banxico might be easing monetary policy, but the inflation outlook is intricate and moving away from the 3% target. In a webinar, he highlighted that the current inflationary environment, while not as high as in 2022, is still outside the target and is continuing to rise this year.
Saldana pointed out that the ex-ante real rate has dramatically misaligned this year, although it remains in restrictive territory. He anticipated that the margin for 50 basis point cuts is becoming smaller due to the inflation outlook. However, he asserted that any interest rate cuts, whether 50 or 25 basis points for the June meeting, would still be restrictive and would not stimulate growth.
Saldana emphasized that Banxico will likely need to maintain a relatively restrictive posture for an extended period to ensure that its objective for general inflation is met. He also expressed that 2025 will be a year of low growth due to global uncertainty, but Mexico could have an advantage over China in the commercial sphere due to its solid external position, despite damages in the institutional framework.
The economic specialist noted that the outlook is uncertain and complex both internally and externally. According to Bx+, the national economy will grow by only 0.5% with an inflation rate of 3.80%. He highlighted that the current administration's commitment to reduce the fiscal deficit by almost two percentage points of GDP in 2025 will narrow the margin for economic policy. Moreover, the federal government did not receive a significant remainder from the Bank of Mexico, and the federal budget will continue to face cuts, particularly in investment.
Inflation as of May 2025 shows a modest upward trend but remains within the central bank's target range. The annual headline inflation rate rose to 3.93% in April, up from 3.80% in March, and is below the Banxico upper threshold of 4%. The core inflation rate, excluding volatile food and energy prices, also increased to 3.93% in April. According to preliminary data, inflation rose further to 4.2% year-on-year in the first half of May, but this increase is partly driven by non-core components.
Banxico's recent rate cuts signal confidence that near-term inflation pressures are not severe enough to require tightening, but vigilance remains as inflation trends are monitored. In May 2025, Banxico cut the overnight interbank interest rate by 50 basis points to 8.50%, reflecting a proactive stance amid manageable inflation pressures.
Finance news suggests that despite Banxico reducing the benchmark interest rate, the outlook for inflation remains complex and deviates from the target, according to economic research group Ve por Mas (Bx+), hinting at potential challenges for businesses. Moreover, Alejandro Saldana, Bx+'s chief economist, anticipates a smaller margin for interest rate cuts due to the inflation outlook, indicating potential constraints in monetary policy decision-making.
