- Decision
- Lower
- Rate change
- 25 bps
- overnight interbank interest rate
- 6.75%
The Bank of Mexico cut the target for the overnight interbank interest rate by 25 basis points to 6.75%, effective March 27, saying it would continue the rate-cutting cycle in line with the current inflation outlook while taking into account the exchange rate, weak economic activity and the degree of monetary restriction; after holding the rate at 7.00% on February 5, it lowered it in March. The Governing Board said future actions will depend on macroeconomic and financial conditions and will keep the reference rate consistent with an orderly and sustained convergence of headline inflation to the 3% target. Domestic conditions were mixed: headline inflation rose to 4.63% in the first fortnight of March from 3.77% in the first fortnight of January due to higher non-core prices, core inflation was broadly unchanged at 4.46%, inflation forecasts were revised up between the first and third quarter of 2026, and headline inflation is still expected to converge to target in the second quarter of 2027, while economic activity showed significant weakness at the start of 2026 and Mexico’s medium- and long-term government yields increased as the peso depreciated slightly. Globally, the central bank said activity should grow faster in the first quarter of 2026 than in the previous quarter, but the Middle Eastern conflict has raised market volatility and commodity prices and added uncertainty, while the Federal Reserve kept rates unchanged. The decision was taken by majority, and the Board said it will evaluate the appropriateness and timing of an additional rate cut.
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%.