Mexico Cuts Key Interest Rate Amid US Tariff Tensions

Mexico City: Mexico's central bank on Thursday announced a half-percentage-point cut to its benchmark interest rate, to 9.5 percent, noting growing concerns about US President Donald Trump's tariff threats.

"Given the escalating trade tensions, global risks have increased," the Bank of Mexico said in a statement.

Trump on Saturday announced 25-percent tariffs on goods from neighboring Mexico, accusing the country of failing to tackle illegal migration and drug smuggling, before quickly delaying them by a month.

The uncertainty is another setback for Mexico's economy, which suffered its first contraction in three years in the fourth quarter of 2024, when gross domestic product fell by 0.6 percent from the previous quarter, according to a preliminary official estimate.

Given the weakening performance, "the balance of risks to growth of economic activity is biased to the downside," the central bank said, adding that further interest rate cuts of a similar magnitude were possible.

A cooling of inflation has allowed the central bank to gradually lower its benchmark rate from a record high of 11.25 percent since last March.

"The inflationary episode stemming from the effects of the pandemic and the onset of the war in Ukraine is being resolved," the Bank of Mexico said.

Annual inflation in Latin America's second-largest economy fell to 4.21 percent in December, from 4.55 percent in November, according to government data.
Inflation further decreased to 3.69 percent in the first fortnight of January, a level not seen since the beginning of 2021, the bank said.

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