Mexican Inflation Drop Tests Banxico’s Rate Cut Strategy

Mexico’s annual inflation dropped to 3.69% in early January, beating expectations and continuing its downward trend from December’s 3.99%.

While core inflation remained stable at 3.72%, a 2.67% decline in produce prices offset rising energy costs. Banxico, having cut rates by 25bps for four consecutive meetings to 10%, now faces a critical decision between maintaining its cautious approach or accelerating cuts.

The decision is complicated by potential US tariffs and economic headwinds, with analysts split between expectations of a 25bp or 50bp cut at the February 6 meeting.

Citi’s survey shows 17 of 30 economists favoring a quarter-point reduction to 9.75%, while 13 predict a half-point cut to 9.5%.