Banxico board splits over potential rate cuts from 6.50%

The Governing Board of Banco de México is divided over the future path of its benchmark interest rate, which has stood at 6.50% since May. Minutes from the policy meeting held on September 24 revealed that two members see conditions to evaluate a rate cut.

One member noted that as long as economic factors continue to support disinflation, future meetings could evaluate a punctual decrease in the reference rate. A second member stated that elements exist to discuss a fine-tuning cut, provided inflation keeps trending lower and financial conditions remain orderly.

A third member adopted a neutral stance, supporting the current level while noting that lower borrowing costs could be assessed if conditions allow. Meanwhile, two board members rejected easing. One highlighted the need for caution against inflation risks, while another argued that policy must remain restrictive for an extended period and suggested that the board might eventually need to consider coupling with Federal Reserve rate increases to ease foreign exchange pressures.

The debate emerges while the Federal Reserve prepares to lift interest rates, which would further compress the interest rate spread between Mexico and the United States from its current historic low. Banxico had previously kept its benchmark rate unchanged by unanimous vote, maintaining that Mexican macroeconomic conditions differ from those in the United States.