Lower the rate? No, thanks.

The Bank of Mexico's Board of Governors will meet tomorrow to decide whether to continue cutting the interest rate—currently at 8.5%—or pause in light of the recent spike in inflation and the uncertain global outlook. Although most analysts are predicting another 50-basis-point cut, the geopolitical context and fears of further inflation have created a divided vote, with a minority likely to oppose a further reduction.

After five consecutive months of decline, annual inflation in Mexico rebounded in May, reaching 4.42% and reaching 4.51% in the first half of June. The serious factor is not just the figure itself, but its upward trajectory: in December 2024, it stood at 4.21%, dropped to 3.59% in January, and has risen steadily since then. That 4.51% figure dashed the optimistic hopes of the government and the central bank, which had hoped to see inflation at 3% by the third quarter.

The data released on June 24 by the National Institute of Statistics and Geography (INEGI) confirm what everyone knows: prices are rising again. Core inflation, which excludes more volatile products, rose to 4.2%—proof that the problem is neither seasonal nor temporary.

Banxico's deputy governor, Jonathan Heath, has warned that this rebound requires a pause in the cuts. If the Board decides to lower the rate to 8.0% on June 26, it would remain close to a level where it would no longer be useful to contain prices—especially since inflation has already exceeded the bank's target range—and would lose leeway in the face of local or external shocks. Furthermore, it would send the wrong message of complacency when firmness is needed.

Heath doesn't speak tentatively: in September 2024, he voted against lowering the rate, while the majority of Board members voted in favor. Last February, he also called for smaller cuts. His position isn't dogmatic: it's realistic. Inflation is still present and lingers in families' pockets.

Those who insist on further interest rate cuts say this will revive the economy. They are mistaken because the current environment is marked by Trump's tariffs, a global slowdown, a weak US economy, and Mexico, which barely grew 0.2% in the first quarter. It's not a full-blown recession, but it's close to one. Reducing interest rates won't solve anything because the problems are structural: informality, lack of access to credit for SMEs, legal uncertainty, and investor distrust.

A rate cut would make credit cheaper, but it won't generate demand or confidence. It could lead to capital flight, depreciation of the peso, and higher inflation. Fueling another vicious cycle would be suicidal for macroeconomic stability.

As if that weren't enough, the geopolitical shock—such as the recent US bombing of the Middle East—adds further uncertainty, yet another reason to remain cautious.

Heath and some analysts see it clearly: the vote will be split, and the pace of cuts will likely slow. Pausing the cuts isn't a sign of weakness, but rather a sign of responsibility. It's not about trying to impress, but rather about protecting what little remains functional amid inflation, economic weakness, and global tensions.

The economy isn't taking off, the environment is strained. For all the reasons above: Lower the rate? No, thank you.

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