Mexico’s annual inflation eased last month to the lowest level since February 2021, keeping in play a fifth straight interest rate cut at the central bank’s next policy meeting.

The Bank of Mexico could increase the size of cuts to its benchmark interest rate in future meetings as inflation eases in Latin America's second-largest economy, minutes from the central bank's December monetary policy meeting showed on Thursday.

Mexico's headline inflation rate eased more than expected in December, fueling bets that the central bank will keep cutting its benchmark interest rate despite an uptick in the core consumer price index.

The central bank cut its benchmark rate by 25 basis points to 10% in December. Minutes hint the bank will consider 50-basis-point cuts going forward.

Mexico’s annual inflation rate dropped to a nearly four-year low of 4.21%, representing a notable decline of 0.34% from 4.55% in November. The inflation rate below market expectations remains quite astounding as they had predicted a rate of 4.

Banxico, as the Mexican central bank is known, lowered its benchmark interest rate by 25 basis points to 10.00% in a unanimous decision by its five-member governing board last month. "In view of the progress on disinflation, larger downward adjustments could be considered in some meetings, albeit maintaining a restrictive stance," the minutes said.