(Bloomberg) -- Several members of Mexico’s central bank expressed concern about the inflationary impact of tariffs that could be imposed by US President-elect Donald Trump after he takes office on Jan. 20.
Members of the Banco de Mexico board said that the 25% tariffs that Trump pledged in November to impose on Mexico and Canada have created additional uncertainty for the economy, according to the minutes of the Dec. 19 monetary policy decision published Thursday. Despite the board’s willingness to forge ahead with cuts, tariffs and other factors led to notes of caution.
One member cited increasing risks “due to the threat of tariffs and other adverse policies from abroad,” while another said that there was “greater uncertainty and increasing risks to inflation, particularly those associated with the possible imposition of tariffs on Mexican exports to the United States, which would also have consequences on Mexico’s economic activity.” The US is Mexico’s No. 1 trading partner.
It’s not the first time that the bank has been explicit that it is considering the potential implications. Governor Victoria Rodriguez told El Financiero news outlet that the result of new tariffs, which Trump reiterated this week he plans to impose on Mexico, could have mixed effects on inflation, given possible ramifications to the Mexican currency and to demand for Mexican goods.
The minutes show that the balance of views within the central bank members didn’t change in a very significant way from the previous meeting, Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. wrote in a note.
“Three of the five directors are open to discussing accelerating the pace rate cuts (to -50bp), but the other two argue that the central bank should be cautious and not rush rate cuts given prevailing domestic and external risks,” he added.
Banxico, as the central bank is known, delivered its latest cut on Dec. 19, easing monetary policy by a quarter-point. Factors including improvements to core inflation and the slowdown of the Mexican economy persuaded the bank’s board members to proceed with a gradual cut for the fourth straight meeting, though they said they would consider accelerating the pace of rate cuts in 2025.
Mexico’s key rate remains one of the region’s most restrictive, and members in the minutes highlighted the improvements to the closely-watched core inflation component, which is within the bank’s target range, while raising concerns about the limited improvements to services inflation. In December, consumer price rises slowed to a near four-year low of 4.21% and the core metric hit 3.65%, according to data released Thursday.
The board members generally expressed openness to more swift changes to monetary policy this year, with one member even saying it was “necessary” to step up the pace in some of the upcoming monetary policy decisions. But they were vague about exactly when those changes might happen. One anonymous member cautioned against haste, saying “prudence, gradualism, and patience must prevail” in order to avoid decisions that later had to be undone.
“The Board expects that the inflationary environment will allow further reference rate reductions,” policymakers wrote in the statement accompanying their December decision. “In view of the progress on disinflation, larger downward adjustments could be considered in some meetings, albeit maintaining a restrictive stance.”
The bank is currently awaiting an announcement from President Claudia Sheinbaum about who might be nominated to replace board member Irene Espinosa, whose last day in the position was Dec. 31.
(Updates to add chart; comment in fifth, sixth paragraphs. An earlier version corrected spelling of central banker’s first name in fourth paragraph)
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