Mexico's central bank lowered its target interest rate by half a percentage point to 8pc, its lowest since July 2022, but signaled a slower pace to the current rate cut cycle on inflation concerns.
The central bank move marked the fourth half-point rate cut of 2025 and followed five quarter point cuts last year from a cyclical peak of 11.25pc in March 2024.
In its rationale, the board said last week it based the decision on "the behavior of the exchange rate, the weakness of economic activity, and the possible impact of changes in trade policies worldwide."
The peso was trading at Ps18.83/$1 Monday compared to Ps19.40/$1 a month earlier. However, for the first time this year, the decision was not unanimous, going 4-1, with deputy governor Jonathan Heath voting to hold the rate unchanged.
Mexican bank Banorte noted the decision was less dovish in tone, having eliminated the phrase "of a similar magnitude" after stating "…looking ahead, the board will assess further adjustments to the reference rate" as appeared in this year's earlier decisions.
Banorte said it now thinks the next decision 7 August will be for a quarter-point cut to 7.75pc, instead of a half-point to 7.5pc, but maintains its year-end forecast for the rate to reach 7.00pc.
The decision included upward revisions to the bank's end-2025 consumer prices forecasts, with the headline forecast at 3.7pc from 3.3pc in the previous forecast on 15 May while the core estimate – which excludes volatile food and energy prices – moved to 3.6pc from 3.4pc.
The board based the revisions on recent inflation data, noting headline inflation accelerated to 4.51pc in the first two weeks of June from 3.93pc in April.
By James Young
