Banxico Delivers Unexpected Rate Cut

Banxico lowered its benchmark interest rate by 25 bps to 6.25% at its November 2026 meeting, defying market expectations for a hold. The Governing Board noted that the disinflation process had continued and judged that, amid prevailing economic slack, exchange rate movements would have a limited pass-through to consumer prices. It also highlighted the absence of demand-side inflationary pressures and noted that the monetary restriction already implemented remained in place. Looking ahead, the Board indicated that keeping rates at the newly reached level for an extended period would support inflation convergence towards its target and help address external macroeconomic challenges. Meanwhile, headline inflation forecasts were revised upward for Q4 2026, while core inflation projections were adjusted slightly higher. Despite these revisions, headline inflation is still expected to converge to the 3% target in Q4 2027.

Mexico’s central bank left its benchmark interest rate unchanged at 6.50% at its September meeting, in line with market expectations. The governing board said it assessed the inflation outlook considering exchange-rate developments, differences in the economic cycles of Mexico and the US, the absence of demand pressures in Mexico, and the degree of monetary restriction in place. The headline inflation forecast for the third quarter of 2026 was revised downward due to lower-than-expected non-core inflation, while the core inflation forecast was revised slightly upward. The balance of risks around the inflation outlook remains tilted to the upside. Changes in US economic policy and prolonged geopolitical conflicts continue to add uncertainty. Meanwhile, the Mexican economy is estimated to have moderated in the third quarter, with slack conditions expected throughout the forecast horizon and downside risks to economic activity persisting.

Mexico's central bank left its benchmark interest rate unchanged at 6.50% at its August meeting, in line with market expectations. Policymakers said the decision reflects an appropriate degree of monetary restraint as inflation continues to ease while risks remain tilted to the upside. Annual inflation slowed to 3.10% in the first half of July from 3.55% in mid-June, while core inflation eased to 3.95%. The central bank noted that inflation is expected to continue declining gradually, with headline inflation projected to converge to the 3% target in the fourth quarter of 2027. Banxico also highlighted that Mexico's economy rebounded in the second quarter after contracting in the previous quarter, although downside risks to growth persist. The board reiterated that it expects to keep the benchmark rate at its current level, citing uncertainty related to geopolitical conflicts, global trade policies, and their potential impact on inflation.