Banco de México maintained its benchmark interest rate at 6.5% [1] during its meeting on June 25, 2024 [2].
This decision reflects the central bank's struggle to curb inflation within the services sector. By keeping rates steady, the bank aims to stabilize prices and prevent inflationary pressures from embedding further into the broader economy.
The Governing Board of the bank said it considers necessary to keep the rate at that level moving forward [3]. This stance indicates a shift in monetary policy, as a spokesperson for the bank said the cycle of rate cuts has concluded [4].
While the bank seeks to manage price stability, the economic landscape remains contested. Some reports suggest the decision comes despite a lower overall level of inflation [5]. However, other data indicates that inflation in the services sector continues to resist downward trends [6].
This discrepancy has led to criticism regarding the bank's internal outlook. Rodolfo Ostolaza said that not even the central bank's own analysts believe in their inflation forecasts [7]. Despite these doubts, the Governing Board said that the current rate is the essential tool for controlling persistent price increases [3].
The decision to hold the rate at 6.5% [1] ensures that borrowing costs remain high for consumers and businesses. This strategy is designed to cool spending and reduce the demand that drives service costs higher, a primary goal for the bank's current mandate.
“The cycle of rate cuts has concluded.”
The decision to halt rate cuts suggests that Mexico's battle with inflation is more entrenched than previously anticipated, particularly in the services sector. By maintaining a high benchmark rate, Banxico is prioritizing price stability over immediate economic stimulation, signaling that the bank will not lower borrowing costs until there is more concrete evidence that inflation is trending toward its target.
