Banxico unexpectedly cut rates by 25 basis points to 6.75%

Christian Borjon Valencia FXStreet

Banco de Mexico, known as Banxico, unexpectedly cut the country’s main interest rate from 7% to 6.75% on Thursday on a 3-2 vote, with Deputy Governors Jonathan Heath and Galia Borja voting to keep interest rates unchanged.

Despite easing monetary policy, the Mexican central bank sees inflation risks trending to the upside. The governing council expects inflation to converge to the 3% plus or minus 1% target in Q2 of 2027, and “will evaluate additional reference rate adjustments.”

Banxico added that the current stance of monetary policy “is adequate to face the challenges posed by an extension and escalation of the Middle Eastern conflict.”

Banxico’s inflation projection

The board projects that headline inflation in 2026 will end at 3.5%, unchanged from the previous forecast. Underlying inflation is projected to hit 3.4% towards the end of the year and towards the end of 2027, both readings are projected to hit Banxico’s 3% goal.

Inflation forecasts for Mexico — Source: Banxico

Banxico FAQs

What is the Bank of Mexico?

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%.

How does the Bank of Mexico’s monetary policy influence the Mexican Peso?

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.

How often does the Bank of Mexico meet during the year?

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.

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