Mexico central bank cuts key rate, sees tariff uncertainty

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Mexico City, Mexico — Mexico’s central bank on Thursday reduced its benchmark interest rate for the fifth time since March, saying US President-elect Donald Trump’s tariff threat was clouding the inflation outlook.

The governing board’s decision to lower the key rate by 0.25 percentage points to 10.00 percent was unanimous, the Bank of Mexico said in a statement.

A cooling of inflation blamed on the Covid pandemic and the Ukraine war has allowed the central bank to gradually lower its benchmark rate this year from a high of 11.25 percent.

READ: Mexico says Trump tariffs would cost 400,000 US jobs

Annual inflation in Latin America’s second-largest economy fell to 4.55 percent in November, from 4.76 percent in October, the statement noted.

While price pressures were expected to ease further, “the possibility that tariffs on US imports from Mexico are implemented has added uncertainty to the forecasts,” the statement said.

“That scenario could imply pressures on inflation,” it added.

Trump has threatened to impose 25 percent tariffs on imports from Mexico unless it halts the flow of fentanyl and migrants.

Despite the uncertainty, the central bank signaled that more — and potentially larger — interest rate cuts were likely.

The governing board “expects that the inflationary environment will allow further reference rate reductions. In view of the progress on disinflation, larger downward adjustments could be considered in some meetings, albeit maintaining a restrictive stance,” it said.