Mexico's central bank (Banxico) cut its key rate by 50 basis points to 9.50% on Thursday, double the 25 basis point cuts it had made since it began lowering borrowing costs.

Mexico's inflationary environment could allow for further cuts in the benchmark interest rate, central bank chief Victoria Rodriguez told Reuters, as the fight to combat rising prices has entered a new phase.

Mexico's central bank (Banxico) cut its key rate by 50 basis points to 9.50% on Thursday, double the 25 basis point cuts it had made since it began lowering borrowing costs from a record high of 11.25% in March 2024.

"Our task is not over. The fight against inflation is now in a new phase," Banxico Governor Victoria Rodriguez said in an interview late on Sunday.

Last week's rate cut brought Mexico's interest rate to its lowest level since September 2022, as annual inflation in Latin America's second-largest economy slowed to 3.69% in the first half of January.

That is the lowest level of headline inflation since early 2021 and is within the bank's target of 3%, plus or minus one percentage point. "To face these challenges of this new stage, we require lower rate levels," added Rodríguez.

The Mexican peso and the local stock market have suffered prolonged volatility due to the threat of tariffs from the United States on its neighbor's exports, despite the fact that the restrictions were paused until March 1, following an agreement between the two countries.

"We trust that the authorities of both countries will work to find greater cooperation and lasting solutions, although we will of course remain attentive to what may be said in March," said the governor of the central bank.

Analysts have warned that tariffs could plunge Mexico into recession and trigger "stagflation" - high inflation, stagnant growth and high unemployment.

Banxico could act if necessary to ensure the orderly functioning of Mexican financial markets, Rodriguez said, stressing the importance of trade ties for both nations.

"Trade integration has been an important driver of growth, as has Mexican participation in U.S. production chains, which has allowed American consumers to have access to products at competitive prices," Rodriguez said.