By Brendan O’Boyle
MEXICO CITY (Reuters) -The Bank of Mexico could increase the size of cuts to its benchmark interest rate in future meetings as inflation eases in Latin America’s second-largest economy, minutes from the central bank’s December monetary policy meeting showed on Thursday.
Banxico, as the Mexican central bank is known, lowered its benchmark interest rate by 25 basis points to 10.00% in a unanimous decision by its five-member governing board last month.
“In view of the progress on disinflation, larger downward adjustments could be considered in some meetings, albeit maintaining a restrictive stance,” the minutes said.
A breakdown of all of the board members’ positions showed several of them supporting the discussion of larger rate cuts.
Banxico began a rate-cutting cycle last March amid easing inflation, ultimately delivering five 25-basis-point cuts and bringing the benchmark rate down from the record 11.25% that it reached in 2023.
At the December meeting, one of the five members pointed to “the undeniable progress in disinflation” as supporting their view that “it is necessary to increase the magnitude of rate cuts in some of the upcoming monetary policy decisions.”
Another member noted “the importance of communicating that adjustments of larger magnitude could be implemented at the next policy meetings.”
DISINFLATION PROGRESS
The comments around larger rate cuts was a contrast from recent meetings. Sticky inflation in 2024 had spurred warnings from board members against bringing down Mexico’s key interest rate too quickly.
Banxico has taken a more dovish approach to monetary easing than that of some of its Latin American counterparts, like Brazil and Uruguay, which have begun raising rates again after bringing them down quickly only to see inflation rebound.
The minutes showed that while two members called for caution in December, the board as a whole highlighted inflation’s downward trajectory even while upwardly revising its year-end inflation forecasts for 2025 at the meeting.
“Most members stated that the revision in forecasts does not suggest an interruption in the disinflation process, but rather a more gradual reduction in headline and core inflation,” the minutes said.
Mexico’s annual headline inflation rate fell more than expected in December, reaching 4.21%, official data published earlier on Thursday showed.
Banxico targets inflation at 3%, plus or minus one percentage point.
