Banxico cuts rates by 50 basis points as expected, to 8.50%
On Thursday, Banco de Mexico (Banxico) reduced interest rates by 50 basis points from 9% to 8.50% on a unanimous vote.
Key highlights of Banxico's monetary policy statement:
The Board estimates that looking ahead it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes.
It anticipates that the inflationary environment will allow to continue the rate cutting cycle, albeit maintaining a restrictive stance.
It will take into account the effects of the country’s weak economic activity and the incidence of both the restrictive monetary policy stance that has been maintained and the stance prevailing in the future on the evolution of inflation throughout the horizon in which monetary policy operates.
The Mexican economy exhibited weakness again during the first quarter of 2025. It registered a low seasonally adjusted quarterly growth rate of 0.2%, after having contracted in the previous quarter.
An uncertain environment and trade tensions poses significant downward risks.
Although headline and core inflation figures came at 3.93% in April, for the longer term remained relatively stable at levels above target.
Inflation forecasts were adjusted upwards in the short-term; due to an increase in merchandise inflation.
Although Inflation risks are skewed to the upside, the outlook has improved as the global shocks have been fading
Banxico Forecasts
USD/MXN Reaction to Banxico's decision
USD/MXN continues to aim higher, posting gains of over 0.60% after hitting a yearly low of 19.29 on May 14. If buyers wish to regain the 20.00 figure, they need a daily close above the 20-day Simple Moving Average (SMA) at 19.57, which could pave the way for testing the 50-day SMA at 19.94, followed by the 200-day SMA at 20.00.
Conversely, expect further weakness if USD/MXN stays below the 19.50 figure. Key support levels lie below that level, with the 19.00 figure being up next.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
