Banxico Cuts Rates by 25bps to 7.25%, As Expected

The Bank of Mexico cut its benchmark interest rate by 25bps to 7% in its December meeting, as expected, bringing it to its lowest level since May 2022. This marks the twelfth consecutive rate cut in an easing cycle that began in March last year, aimed at stimulating economic growth amid sluggish GDP performance and uncertainty over US tariffs. Mexico’s GDP shrank 0.2% in Q3 after stagnating in Q2, prompting Banxico to halve its 2025 growth forecast to 0.3%, though it expects 1.1% in 2026 and 2% in 2027. The decision was split, with Deputy Governor Jonathan Heath voting to hold, reflecting concerns over persistent inflation. Headline inflation rose to 3.8% in November, slightly above expectations, while core inflation, excluding volatile items, remains stubbornly above 4%. Despite near-term inflation risks, Banxico projects inflation will return to its 3% target by Q3 2026.

The Bank of Mexico cut its benchmark interest rate by 25 bps to 7.25% in its November meeting, in line with market expectations, bringing it to its lowest level since May 2022, and indicated it would consider further easing at future meetings. The decision came amid ongoing concerns about global trade tensions and weakening economic activity in the country. In a statement on Thursday, the bank said it took into account “the weakness of economic activity” and persistent global uncertainty in its decision to lower borrowing costs. Between the first half of September and the first half of October, annual core inflation eased slightly from 4.26% to 4.24%, while headline inflation decreased from 3.74% to 3.63%. In updated forecasts released on Thursday, Banxico maintained its estimate for year-end annual core inflation at 4.2% in the fourth quarter, while projecting headline inflation to converge to the 3% target by the third quarter of 2026.

The Bank of Mexico cut its benchmark interest rate by 25 bps to 7.5% in its September meeting, in line with market expectations, bringing it to its lowest level since May 2022, and indicated it would consider further easing at future meetings. The decision came amid ongoing concerns about global trade tensions and sluggish economic growth in the country. In a statement on Thursday, the bank said it took into account "weak economic growth" and fluctuating global trade policies in its decision to lower borrowing costs. Wednesday’s data showed annual core inflation hit 4.26% in the first half of September. Banxico targets inflation at 3%, plus or minus a percentage point. Headline inflation also accelerated in the first half of September, rising to 3.74% from 3.49% in the first half of August. In updated inflation forecasts released on Thursday, Banxico raised its estimate for year-end annual core inflation to 4.0% in the fourth quarter, up from its previous estimate of 3.7%.