Central Bank of Mexico. (Source: enfoquenoticias.com.mx)

This is the second time Banxico's board of directors has decided to lower interest rates this year, following a 25 basis point cut on March 30.

However, according to Mexico's National Institute of Statistics and Geography (Inegi), the inflation rate of Latin America's second largest economy rose to 5.57% in July 2024, marking the fifth consecutive month of increase and reaching a 14-month high. This increase exceeded all experts' calculations due to the main impact of rising prices of food and essential goods.

According to Banxico's calculations, the inflation rate may maintain its upward momentum by the end of this year, but will still be within the allowable range for adjusting the base interest rate.

The financial institution also raised its forecast for Mexico's average inflation in the last three months of 2024 to 4.4% from 4% previously, while maintaining its forecast of 3% for 2025.

In addition, Banxico mentioned the slowdown in Mexico's economic growth in the second quarter, as well as the impact of the world market on this economy.

Immediately after Banxico made the announcement, the local currency Peso pared its gains in recent days and traded at 18.94 Pesos to 1 USD.

Assessing Banxico's interest rate cut this time, analysts from Citibanamex Bank said that this was the right decision based on the macroeconomic growth outlook.

Meanwhile, many other economic experts disagree with the decision to lower the base interest rate, saying that inflation in Mexico is still on the rise, which will put pressure on the exchange rate, causing business operating costs to increase.

In addition, the negative impacts of climate change and geopolitical conflicts around the world will also negatively affect the Mexican economy.