- Decision
- Lower
- Rate change
- 50 bps
- overnight interbank interest rate
- 8%
Banco de México’s Governing Board cut the target for the overnight interbank interest rate by 50 bp to 8.00%, effective 27 June 2025, citing persistent economic slack, softer global and domestic growth prospects amid trade-related uncertainty, and a modest improvement in the balance of risks for inflation despite a recent uptick in price pressures. This is the fourth straight 50 bp reduction since February, taking cumulative easing to 200 bp from 9.50%. Government bond yields have fallen across the curve and the peso has continued to appreciate, while the economy expanded only moderately in April and remains weak. Headline inflation accelerated to 4.51 % in mid-June and core to 4.20 %, with year-end 2025 expectations and near-term forecasts revised higher, though both measures are still projected to converge to the 3 % target by Q3 2026; risks remain skewed upward, led by potential FX depreciation, geopolitical and trade shocks, and sticky core prices. Internationally, subdued but steady global growth, a depreciating USD, lower volatility and unchanged Federal Reserve policy frame the outlook, with trade tensions and geopolitical strains identified as key external threats. The Board will consider additional rate cuts, aiming to keep the policy stance consistent with a sustained return of headline inflation to target, and reaffirmed its commitment to low and stable inflation.
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%.