Banxico Unexpectedly Cuts Rates

The Bank of Mexico lowered its benchmark interest rate by 25 basis points to 6.50% at its May 7, 2026 meeting, as expected, bringing it to its lowest level since April 2022 and likely marking the end of the easing cycle that began in March 2024. The decision was split, with three board members backing the cut while two favored holding rates unchanged. Banxico cited a contraction in Mexico’s economy during Q1 2026, saying weaker activity has created greater economic slack and reduced demand-driven inflation pressures. Inflation eased between mid-March and April, with headline inflation slowing from 4.63% to 4.45% and core inflation falling from 4.46% to 4.26%. Despite upward revisions to short-term inflation forecasts due to higher non-core prices, the central bank still expects inflation to converge to its 3% target in Q2 2027. Banxico said maintaining the policy rate at the current level will likely be appropriate going forward amid ongoing geopolitical and trade-related uncertainty.

The Bank of Mexico reduced its benchmark interest rate by 25 basis points to 6.75% in its March 26, 2026 meeting, unexpectedly resuming the easing cycle. This reduction follows the brief pause in rate cuts that occurred in February after the sequence of easing began in March last year. Mexico’s economic activity showed marked weakness in early 2026 after expanding in the previous quarter, and the Board warned that downside risks from trade tensions and global uncertainty continue to imply risks to the outlook. The decision to cut was taken by a majority of the Board, which judged a reduction appropriate given the current inflation panorama, the weakness in economic activity, and the degree of monetary restriction implemented. Headline inflation rose to 4.63% in mid-March from 3.77% in January, while core inflation remained practically unchanged at 4.46%, remaining above 4%. Despite these near-term pressures, Banxico still projects inflation will converge to its 3% target in Q2 2027.

The Bank of Mexico left its benchmark interest rate unchanged at 7.00% in its February 5, 2026 meeting, pausing the easing cycle and keeping the rate at its lowest level since May 2022. This pause ends the recent sequence of rate reductions that began in March last year. Mexico’s economic activity expanded in Q4 2025 after the contraction recorded in Q3, although the Board warned that downside risks from trade tensions and global uncertainty persist. The decision to hold was taken unanimously by the Board, which judged a pause appropriate given the current inflation outlook and the need to assess the impact of policy changes. Headline inflation eased slightly to 3.77% in mid-January from 3.80% in November, while core inflation rose to 4.47% (from 4.43%), remaining stubbornly above 4%. Despite these near-term pressures, Banxico now projects inflation will converge to its 3% target in the second quarter of 2027.