Banxico cuts rates by 50 basis points to 8%, as expected
On Thursday, the Banco de Mexico (Banxico) decided to reduce its benchmark interest rate by 50 basis points, bringing it down to 8%. The decision was not unanimous, as the Deputy Governor, Jonathan Heath, voted to hold rates unchanged at 8.50%.
Key quotes of the monetary policy statement:
Headline inflation rose from 3.93% in April to 4.51% between April and the first fortnight of June.
Core inflation increased from 3.93 to 4.20% during the same period.
Headline inflation expectations for the end of 2025 were revised upwards while those for longer terms remained relatively stable at levels above target.
Headline inflation is still expected to converge to the target in the third quarter of 2026
The Governing Board deemed appropriate to continue calibrating the monetary policy stance.
This decision was made considering the behavior of the exchange rate, the weakness of economic activity, and the possible impact of changes in trade policies worldwide.
Taking into account the current inflationary outlook and the prevailing level of monetary restriction, with the presence of all its members, the Board decided by majority to lower the target for the overnight interbank interest rate by 50 basis points to 8.00%.
Looking ahead, the Board will assess further adjustments to the reference rate.
Actions will be implemented in such a way that the reference rate remains consistent at all times with the trajectory needed to enable an orderly and sustained convergence of headline inflation to the 3% target during the forecast period.
Forecasts for headline and core inflation
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.
