Banco de Mexico (Banxico) released the minutes from its latest meeting, where the ongoing Middle East conflict was a central topic of discussion among board members [1]. On May 7, Banxico reduced its benchmark interest rate by 25 basis points to 6.50%, signaling what it described as the end of the easing cycle that began in 2024 [1]. The rate cut decision was not unanimous, with a 3-2 vote split; Deputy Governors Galia Borja and Jonathan Heath voted to keep rates unchanged [1].
All board members agreed that risks to inflation are tilted to the upside, primarily due to the Middle East conflict, although they noted that the direct impact on Mexican inflation has so far been limited [1]. Most members emphasized that the balance of risks for inflation remains biased upward, and cited the contraction of economic activity in Mexico during the first quarter, which was notably greater than anticipated and affected all three major sectors [1].
Deputy Governor Borja advocated for a cautious approach, stating that maintaining the current policy stance is appropriate until more information is available to better assess the inflation outlook [1]. Deputy Governor Heath highlighted the narrow margin for further rate cuts and the elevated uncertainty, justifying a pause in policy adjustments [1]. Heath also referenced sustained core inflation, price shocks, military conflicts, and fiscal adjustments as ongoing concerns [1]. One board member noted that while the evolution of price shocks remains uncertain, upside risks to inflation are still contained [1]. Most members expect slack conditions in the economy to continue widening, which could help reduce inflationary pressures over time [1].
CONCLUSION
Banxico's latest minutes underscore heightened inflation risks stemming from the Middle East conflict, even as the direct impact on Mexico remains limited. The central bank signaled the end of its rate-cutting cycle, with board members advocating caution amid economic contraction and persistent uncertainty. Market participants are likely to interpret Banxico's stance as a signal for stable policy in the near term.