- Decision
- Lower
- Rate change
- 50 bps
- overnight interbank interest rate target
- 8.5%
Banco de México’s Governing Board on 15 May 2025 unanimously cut the target for the overnight interbank rate by 50 bp to 8.50%, arguing that a softer global and domestic growth outlook, easing—but still above-target—price pressures and lower local market rates warrant a somewhat less restrictive stance. Following identical 50 bp reductions in February and March, the policy rate has fallen a cumulative 150 bp from 10.00% earlier this year. Headline and core inflation both registered 3.93% y/y in April, with projections nudged up in the near term but still showing convergence to the 3 % goal by Q3 2026; activity remained weak as Q1 GDP grew just 0.2 % q/q after the prior quarter’s contraction, while government bond yields fell and the peso firmed within a broad range. The statement also cited a depreciation of the USD, mixed moves in global yields and persistent risks from escalating trade tensions and geopolitical conflicts. Looking ahead, the Board expects scope to “continue calibrating” policy and is open to additional cuts of similar size while preserving an overall restrictive stance to secure the disinflation path.
Rate evolution
The Bank of Mexico lowered the policy rate by 100 basis points from 8.00% in June 2025 to 7.00% in December 2025, moving from a 50 basis point cut to a run of 25 basis point reductions, before pausing in February 2026, resuming easing with a 25 basis point cut to 6.75% on March 26, effective March 27, and maintaining the target for the overnight interbank interest rate at 6.50% on June 25, August 6 and September 24. The Governing Board eased as economic activity weakened and trade tensions posed downside risks, while mixed inflation dynamics and persistent core inflation led it to revise forecasts and, in August, delay expected convergence to target to the fourth quarter of 2027, a timeframe it retained in September.
On February 5, the Board left the target at 7.00%, judging it appropriate to pause the rate-cutting cycle while assessing the revised inflation outlook, fiscal adjustments introduced at the beginning of the year, exchange rate developments, weak activity and the degree of monetary restriction, before resuming rate cuts on March 26 after considering observed exchange rate levels, weak activity and the degree of monetary restriction, even as headline inflation rose to 4.63% in the first fortnight of March from 3.77% in the first fortnight of January, core inflation remained at 4.46%, and risks to the inflation path stayed biased to the upside. On June 25, the Board unanimously maintained the target at 6.50% after assessing exchange rate levels, the absence of demand-related pressures and the degree of monetary restriction, while headline and core inflation had declined to 3.55% and 4.12%, respectively, in the first fortnight of June and the economy was expected to expand in the second quarter after contracting in the first. On August 6, it unanimously held the target at 6.50% and signalled that maintaining the rate at its current level would be appropriate, noting that the economy had rebounded in the second quarter and slack was expected to persist, while headline and core inflation fell to 3.10% and 3.95%, respectively, in the first fortnight of July. On September 24, the Board again unanimously held the target at 6.50% after assessing exchange rate behavior, the different stages of the economic cycles in Mexico and the United States, the absence of demand pressures in Mexico and the degree of monetary restriction, as third-quarter activity appeared to moderate and slack was expected to persist, while headline inflation rose to 3.42% in the first fortnight of September due to higher non-core inflation and core inflation declined to 3.79%.