"MEXICO CITY, Jan 9 (Reuters) - The Bank of Mexico is considering more significant reductions to its reference interest rate in upcoming meetings as inflation softens in Latin America's second-largest economy, according to minutes from the central bank's December monetary policy meeting released on Thursday.
Known as Banxico, the Mexican central bank lowered rates by 25 basis points to 10.00% in a unanimous decision by its governing board last month.
The minutes stated, "In light of progress in disinflation, more substantial downward adjustments might be contemplated in some meetings, while still maintaining a restrictive stance."
Of the board members, three out of five supported discussing deeper rate cuts.
Banxico initiated a series of rate reductions last March due to easing inflation, implementing a total of five 25-basis-point cuts to bring the benchmark rate down from the historic high of 11.25% in 2023.
The minutes "indicate a consensus to continue reducing the rate in the next meeting, although there are divergent views on the pace of these reductions," noted Actinver Research.
One Banxico board member emphasized "the undeniable progress in disinflation" as a reason to advocate for "considering larger rate cuts in the upcoming monetary policy decisions."
Another board member stressed "the importance of communicating the potential implementation of more significant adjustments at the following policy meetings."
Banxico's approach to monetary easing has been more cautious compared to some of its Latin American counterparts like Brazil and Uruguay, which have started to raise rates again after swiftly lowering them, leading to a rebound in inflation.
Two board members remained prudent, cautioning against premature monetary easing, with one described as a "committed hawk" advising against "accelerating the pace of easing or signaling such actions in future meetings," according to Alberto Ramos, chief Latin America economist at Goldman Sachs.
Nonetheless, the majority of directors recognized the improving inflation outlook, despite revising their 2025 year-end inflation projections upward.
"Most members stated that the forecast adjustments do not imply a halt in the disinflation process, but rather a slower decline in headline and core inflation," as per the minutes.
Data released earlier on Thursday revealed Mexico's annual headline inflation rate for December stood at 4.21%.
Banxico aims for inflation at 3%, with a one percentage point margin on either side.
Jonathan Heath, a board member, later expressed on social media that the December inflation figure was "encouraging," noting it was the first month where inflation dipped below the 4.26% recorded in October 2023.
Considering the inflation projections, Goldman Sachs finds that the likelihood of a 50-basis-point rate cut is not overly restrictive, as mentioned by Ramos, while Actinver foresees a higher chance of a 25-basis-point rate reduction from Banxico in February, "without excluding the potential for a 50-basis-point adjustment."