Mexican cenbank poised for rate cut despite tariff threat

Mexico's central bank (Banxico) is expected to cut its key interest rate for the fifth consecutive time on Thursday, despite the latent threat by the Donald Trump administration to impose tariffs of 25%.

Trump initially announced the tariffs will take effect earlier this month but suspended them for a month after a phone call with Mexican President Claudia Sheinbaum.

The current policy rate is 10%. In a survey of economists conducted by Citi Mexico, 17 respondents expected the next cut to be 25 basis points and 13 predict 50bp.

In the first half of January, headline inflation in Mexico slowed to an annual rate of 3.69%, its lowest level since the second half of February 2021. Gabriela Siller, director of economic studies at Grupo Financiero Base, wrote on X that this reduction increases the likelihood that Banxico will cut the interest rate by 50bp.

“Despite the uncertainty and speculation about how Trump will proceed, we believe that Banxico has not changed its perspective on what it will announce [on Thursday]. We are thinking that there will be a cut in the interest rate, even the possibility that it will be 50bp,” James Salazar, deputy director of economic analysis at CI Banco, told BNamericas.

“The current inflation figures and the expectations justify that it could dare to make a larger cut,” he added.

According to the Citi survey, the expected key rate average for the end of 2025 remained unchanged at 8.50%, with estimates ranging from 7.50% to 9.0%. The 2026 average forecast remained at 7.50%, with estimates ranging from 6.0% to 8.75%.