Mexico's central bank (Banxico) on Thursday cut its benchmark interest rate by a quarter point to 6.25pc, its lowest level in more than four years.
Banxico had held the rate unchanged over the past three decisions following a quarter-point cut to 6.5pc on 7 May — the last cut in a cycle that reduced the benchmark 450 basis points from a cyclical high of 11.25pc in March 2024.
The board's 3-2 decision to lower the rate diverged from analysts' consensus, with only six of 36 respondents in Citi Research's 4 November analyst survey predicting the cut, whereas the median forecast was for a quarter point hike in September 2027.
The bank statement noted inflation sped to 3.62pc in mid-October from 3.42pc a month earlier, the roughly 10pc depreciation of the Mexican peso against the dollar since September and 3.2pc GDP growth in the third quarter — its strongest performance in three years.
"Environmental factors aside, nevertheless," said Banxico, "economic slack is still expected to persist throughout the forecast horizon along with downward risks to economic activity." The bank countered peso depreciation concerns by noting that under prevailing slack conditions, the pass-through of exchange rate fluctuations to consumer prices would be limited.
The policy statement said members perceive "no demand-side pressures in the Mexican economy" at this time, and that maintaining the target interest rate at 6.25pc "will support the convergence of inflation to its [3pc] target", still expected to occur in the fourth quarter of 2027.
Thursday's statement retained language from the 24 September decision concerning uncertainty in the Middle East and potential shifts in US economic and trade policies, but assured the current monetary policy level will "be adequate to face the challenges posed by the external macroeconomic environment."
Mexican bank Banorte, in a note, said the statement "shifted toward a more neutral stance following the cut," due to Banxico's implication that no further cuts are expected.
And in addition to reducing its end-2026 forecast for the benchmark to the current 6.25pc, Banorte now anticipates two quarter-point hikes in the second half of 2027, bringing the rate to 6.75pc.
By James Young
