Banxico Surprises With Rate Cut To 10.75% Amid Inflation Surge And Market Turmoil

(MENAFN- The Rio Times) The Bank of Mexico (Banxico) unexpectedly reduced its key interest rate to 10.75%. The decision was influenced by several factors.

These included rising inflation, recent market instability such as the "Black Monday" stock market crash, and U.S. recession fears.

This rate cut, not widely anticipated, comes amidst continuing monetary tightening that started back in June 2021, aiming to address inflation and stabilize the local currency.

Despite this, recent economic data showing a surge in inflation to the highest in over a year suggests persistent price pressures, primarily driven by the increasing costs of fruits and vegetables.

The decision to cut rates was contentious within Banxico's board, with a split vote reflecting divergent views on the appropriate monetary response to the current economic environment.



Some members pushed for the cut due to global and local economic pressures. These included weaker economic signals from the U.S. and a policy shift in Japan, which are affecting global financial markets.

Some members pushed for the cut due to global and local economic pressures. These included weaker economic signals from the U.S. and a policy shift in Japan, which are affecting global financial markets.
Background
In July 2024, Mexico's annual inflation surged to 5.57%, driven by rising fruit and vegetable prices. The National Institute of Statistics and Geography (INEGI ) reported a 1.05% monthly rise in the National Consumer Price Index (INPC).

This pushed annual inflation to 5.57%. This marks the highest level in over a year and the fifth consecutive month of acceleration.

In comparison, June's annual inflation was 4.98%, the highest since May 2023. Analysts predicted a 5.54% annual inflation rate for July. This aligns closely with the actual figure.

MENAFN08082024007421016031ID1108534286