Mexico flagging new taxes, tariffs signals support for rate cut pause

Mexico's central bank policymakers signaled greater caution on the pace of its interest rate cuts in 2026, citing trade uncertainty and new tariffs, minutes of the bank’s December monetary policy meeting showed on Thursday.

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The minutes are likely to fuel expectations that Banxico could soon pause a rate easing cycle that began in 2024 and continued in December, when it cut its benchmark interest rate by 25 basis points to 7.00%, its lowest level since April 2022.

The December rate decision was 4-1, with Deputy Governor Jonathan Heath voting to hold. The board's majority argued that the quarter-point rate cut was justified by recent progress on inflation, a weak economy, and a strong peso, but flagged several factors meriting a more cautious outlook in future decisions.