Further rate cuts could worsen Mexico inflation risks

Significance

The move followed an earlier 25-bp cut in March; inflation had been increasing significantly at that point and continues to do so.

Impacts

• Higher inflation may push wage settlements upwards, increasing pressures on costs and prices.
• A weaker peso should help to keep the current account deficit at manageable levels, probably below 1% of GDP in 2024.
• Peso depreciation may boost tourism and incentivise Mexicans abroad to increase remittance payments to their families.