Banxico Minutes: Weaker growth and lower inflation keep rate-cut bets alive

• Banxico sees Q4 2024 GDP contraction, with 2024 growth slowing to 1.5%.
• Inflation falls to 3.69%, back within Banxico's 2-4% target range.
• Most members anticipate further inflation decline, keeping rate-cut path open.

Banco de Mexico, also known as Banxico revealed its monetar policy minutes for the decision announced on February 6. The Central Bank decided to lower borriwng costs by 50 basis points (bps)  to 9.50% via a 4 to 1 vote split, with Deputy Governor Jonathan Heath, supporting a 25 bps rate cut.

Key highlights

All members pointed out that the weakness of the Mexican economy intensified in the fourth quarter of 2024. 

Most members stated that, according to the flash estimate, GDP contracted with respect to the previous quarter. They highlighted that annual GDP growth would have been 1.5% in 2024 as a whole, in contrast to the growth above 3% in each of the previous two years.

Most members indicated that investment slowed down markedly in 2024. 

The majority anticipated that the Mexican economy will continue growing at low rates in 2025. 

Some members mentioned that the balance of risks to growth is biased to the downside.

Most members agreed that a possible impact on trade flows between Mexico and the United States would result in a decline in Mexican economic activity.

All members agreed that there has been a significant progress in resolving the inflationary episode derived from the shocks of the pandemic
and the war in Ukraine. 

Most members pointed out that the behavior of core inflation reflects the progress attained. They commented that the inflationary outlook seems more favorable than in the most critical moments of the inflationary episode. 

Most members noted that since the last monetary policy meeting, headline inflation decreased to 3.69% in the first fortnight of January 2025.

Most members highlighted that headline inflation returned to the 2-4% variability range for the first time since then. 

Another member added that annual headline inflation has declined 501 basis points since the peak of the current inflationary episode. One member asserted that, nevertheless, it remains above target. 

Most members stated that the most recent decline in headline inflation was associated with the significant reduction in noncore inflation.

The majority noted that in its most recent reading core inflation reached 3.72%. They commented that it has been below 4% for four and a half months. 

Most members emphasized the importance of the expectations channel in the transmission of monetary policy. They highlighted that these
have remained anchored despite the complexity of the recent inflationary episode. They asserted that this is the result of Banco de México's firm response.

Most members mentioned that inflation is expected to continue declining as previously anticipated.