The Banco de México (Mexico's central bank) cut its target interest rate by 25 basis points on Thursday, to 6.25%, in a decision most of the market was not expecting. The new level, effective 6 November, is the lowest since March 2022 and ends a pause that had lasted three consecutive announcements.
This was the year's second-to-last monetary policy decision. The rate had stood at 6.50%, where the central bank had left it at its three previous meetings.
A three-to-two vote
The Junta de Gobierno (the bank's governing board) approved the cut by majority. Governor Victoria Rodríguez Ceja and deputy governors José Gabriel Cuadra García and Omar Mejía Castelazo voted in favour. Galia Borja Gómez and Jonathan Heath voted against, preferring to hold the rate at 6.50%.
In its statement, the board said the disinflation process "has continued" and that it sees no demand-side pressure in the economy. It also judged that the pass-through from exchange-rate moves to prices would be limited, given slack in the economy, and that "the degree of monetary restriction already in place is still operating".
On what comes next, the text was explicit: holding the rate "for a prolonged period" at the level now reached will support inflation's convergence to target. In other words, the central bank paired the cut with the announcement of a long pause, rather than presenting it as the start of an easing cycle.
The inflation numbers
Headline inflation fell from 4.59% in March to 3.45% in September, then picked back up to 3.62% year-on-year in the first half of October. Core inflation — which strips out the most volatile prices — stood at 3.78% over the same period, driven mainly by services.
Banxico revised its own projections upward: it now expects to close 2026 with headline inflation at 3.70%, against the 3.50% it had forecast before, and core inflation also at 3.70%, up from 3.60%. Convergence to the 3% target is still projected for the final quarter of 2027.
Read together, those figures explain the internal dissent: the bank cut the rate in the same announcement in which it conceded inflation will end the year higher than it had calculated.
A cut against the consensus
The decision went against what analysts had anticipated. In Citi's expectations survey, of 36 participants, 20 forecast no move at all in November and 10 expected no change for the rest of 2026. Only six institutions predicted a cut: Bankaool, Barclays, Bradesco BBI, Finamex, Itaú BBA and UBS.
With the US Federal Reserve holding its rate in the 3.75% to 4% range, the interest-rate gap between Mexico and the United States narrowed to 225 basis points, a record low. That gap is one of the peso's main supports: the narrower it gets, the less there is to be earned holding the Mexican currency against the dollar.
Among the warnings issued before the announcement, JPMorgan floated a possible depreciation of around 5% for the peso, with the dollar reaching 19.50, while Banamex pointed to marginal benefits set against elevated volatility risks. The Mexican currency had already weakened by 6% in September.
With information from Infobae México, Expansión and El Financiero.
