Mexico's central bank cut its benchmark interest rate by a quarter point to 6.75pc, its lowest level in four years, even as inflation was accelerating in the runup to the Mideast Gulf conflict.
Policymakers, in their statement, said they weighed "the inflationary panorama", the current peso-dollar exchange rate, weak economic activity, along with the "monetary posture achieved", as appropriate to face the inflationary threats from a prolonged and escalating conflict in the Middle East.
The cut, a surprise 3-2 split decision, renews the current rate cut cycle after pausing the rate at 7pc in the previous decision last month. The cut is the latest in a string of cuts that brought the rate down from 11.25pc in February 2024.
The rate cut decision Thursday by Mexico's central bank, Banxico, followed a quarter point cut by Brazil's central bank on 18 March. The US Federal Reserve, the European Central Bank, the Bank of England and the Bank of Canada kept their target rates unchanged last week.
Mexico's central bank noted headline inflation accelerated to an annual 4.63pc in the first half of March from 3.77pc at mid-January while core inflation was "practically unchanged", slowing to 4.46pc from 4.47pc over the same two-month period.
Given the trend, Thursday's decision broke with analyst forecasts, with 23 of 37 banks surveyed in Citi Research's 20 March poll having called for the next cut to come at the 7 May meeting or later.
The bank revised both headline and core inflation forecasts higher for the first three quarters of 2026, with CPI reaching 3.7pc in the third quarter, rather than 3.6pc in its previous estimate. Still, policymakers continue to expect inflation to converge to the 3pc target in the second quarter of next year.
Looking ahead, the bank said it will "evaluate the appropriateness and timing for an additional reference rate cut" in place of the previous decision's wording, which signaled it would "evaluate additional reference rate adjustments."
The shift in wording, said Mexican bank Banorte, "suggests that there is still one remaining reduction in this rate-cutting cycle," which would bring the rate to 6.5pc.
