- Decision
- Lower
- Rate change
- 25 bps
- overnight interbank interest rate
- 7%
Banco de México’s Governing Board cut the target for the overnight interbank interest rate by 25 bp to 7.00% with effect from 19 December 2025, judging that continued weakness in economic activity, firmer peso dynamics and a still-gradual disinflation of services prices allow a further, cautious reduction even though headline and core inflation forecasts were revised higher and the balance of risks remains tilted upward. The move extends a year-long easing cycle that has lowered the policy rate by a cumulative 250 bp from 9.50% in February through a series of 50 bp and 25 bp steps, most recently in August, September and November. The decision adjusts the operating target within the existing overnight interbank framework; one board member preferred to keep the rate at 7.25%. Headline CPI rose to 3.80% in November from 3.63% in mid-October and core inflation increased to 4.43%, while end-2025 headline expectations edged down and medium-term expectations stayed “above target”; headline inflation is still projected to reach the 3% goal in 2026 Q3. Domestic benchmark bond yields have climbed at most maturities since the prior meeting and the peso has appreciated, as output is seen remaining weak in 2025 Q4 amid persistent trade-related uncertainty. Externally, global growth decelerated further, advanced-economy core inflation has proved sticky, and the US Federal Reserve lowered its policy rate by 25 bp, accompanying a softer USD and lower US Treasury yields; key risks stem from escalating trade frictions and geopolitical tensions. The Board will judge the timing of any further rate cuts to keep monetary conditions consistent with a sustained and orderly convergence of inflation to target.
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%.