Banxico surprises analysts and reduces rate despite inflation acceleration

The Bank of Mexico (Banxico) decided on Thursday to reduce its interest rate by 0.25% interest rate interbank rate to 10.75% on the very same day that it was announced that annual inflation stood at 5.57% in July, a surprising move that was highly questioned by financial analysts.

The central bank’s decision came amid volatility in international financial markets, the depreciation of the peso, and as general inflation expectations for the end of 2024 increased.

Banxico reported that in making this move it considered, among other things, “the nature of the shocks that have affected the non-core component and the expectation that their effects on headline inflation will dissipate in the coming quarters.”

The surprise of the measure was immediate. Financial experts agreed that it was a risky decision that could have consequences for the reputation of the Bank of Mexico.

For Alfredo Coutinhodirector for Latin America of the consulting firm Moody’s, the movement was “totally inconsistent with inflationary conditions” current. “On the one hand, Banxico ‘significantly’ corrects upwards the inflation estimates for the rest of the year and on the other, relaxes monetary conditions“, he wrote on his X account, formerly Twitter.

In his opinion, the measure is reckless and risky because “It shows a lack of commitment to the priority mandate of price stability, putting credibility in monetary affairs at risk.”.

Gabriela Silleranalyst of the BAS Financial Groupagreed and said that in his opinion the rhetoric that prices can be controlled with the economic slowdown won out.

“This could have been a policy error that could later end up costing the Bank of Mexico its reputation.“Siller added in a message to The Associated Press.