Banxico cuts the reference rate by 50 points

The Bank of Mexico ( Banxico ) lowered its interest rate to 8%, its eighth consecutive cut and the fourth by 50 basis points, taking into account the current inflation outlook, the degree of monetary restriction, and the weak economic outlook.

In its announcement, within market expectations, the central bank argued that it deemed it "appropriate to continue calibrating the monetary stance, taking into account the behavior of the exchange rate, the weakness of economic activity, and including the potential impact of changes in global trade policies."

The measure contrasted with that of the US Federal Reserve (Fed), which last week kept interest rates in the 4.25% to 4.5% range despite Donald Trump's public calls for further immediate cuts.

The decision, approved by a majority but with one vote against, is the eighth consecutive cut since the meeting of March 21, 2024, when the Governing Board reduced the rate for the first time since March 2023 amid improved inflation expectations.

Analysts had expected this resolution from Banxico after the announcement on June 19 that overall inflation in the country climbed to 4.51% annually in the first half of June.

The Governing Board stated that it will "consider additional cuts to the reference rate," taking into account the effects of all determinants of inflation.

He stated that the actions implemented will seek to ensure that the reference rate "is consistent, at all times, with the trajectory required to promote the orderly and sustained convergence of headline inflation to the 3% target within the planned timeframe."

Banxico raised its forecast for average headline inflation to 3.7% for the last quarter of 2025; it warned that the balance of risks to the projected inflation trajectory "remains biased upward," although "this is less pronounced than that faced between 2021 and 2024."

The bank identified currency depreciation, disruptions due to geopolitical conflicts or trade policies, persistent underlying inflation, cost pressures, and climate impacts as upside risks.

He also noted that changes in economic policy by the U.S. administration have added uncertainty to the outlook and that their effects could put pressure on inflation on both sides of the balance sheet.

CT