- Lead. Mexico’s central bank cut its benchmark rate by 25 basis points to 6.25% on November 5, catching markets off guard and calling the move a “one-off adjustment” after three consecutive meetings on hold.
- Fact. The 3-2 vote divided Banxico’s board: Governor Victoria Rodríguez Ceja and two deputy governors favoured cutting, while two others wanted to hold as headline inflation ticked up to 3.62%.
- Stake. The peso weakened 0.7% on the decision; Banxico signalled it expects to hold at 6.25% for an extended period, with markets pricing a 92% chance of no change at the December 17 meeting.
Banco de México surprised financial markets on November 5 with a 25-basis-point rate cut that ended three straight months on hold, lowering the overnight interbank rate to 6.25% — the lowest level since February 2022 — and describing the action as a one-off rather than the start of a fresh easing cycle.
A Split Decision
The five-member governing board voted 3-2 for the cut, according to reporting by Rio Times Online. Governor Victoria Rodríguez Ceja and deputy governors José Gabriel Cuadra García and Omar Mejía Castelazo backed the reduction. Deputy governors Galia Borja Gómez and Jonathan Heath — both hawks on inflation — voted to hold. The slim majority reflects genuine disagreement on the board about whether Mexico’s inflation dynamics justify easing while headline prices are still rising.
Headline inflation climbed from 3.42% in the first half of September to 3.62% in the first half of October, driven by volatile food and energy items. Core inflation, which strips those components out, eased fractionally from 3.79% to 3.78%. Banxico raised its fourth-quarter headline forecast from 3.5% to 3.7% and acknowledged that upside risks to inflation remain, including a weaker peso, potential trade-policy disruption, and geopolitical pressures filtering through commodity prices.
Rationale: Spare Capacity and Slowing Core
The majority argued that enough slack exists in the economy to absorb the cut without stoking consumer prices. Banxico’s statement pointed to spare capacity as a restraint on how much a depreciating peso can feed through into end prices, and said there is no visible demand pressure driving inflation. The central bank has previously guided toward a 3% inflation target by the fourth quarter of 2027, a horizon it reiterated without changing.
The cut follows a broader easing cycle that brought the rate from a cycle peak of 7% to 6.50% between March and May this year. Banxico then held for three consecutive meetings, declaring that cycle complete — before Thursday’s decision added a final, unscheduled step down. That sequencing makes the central bank’s characterisation of the move as a “one-off adjustment” easier to understand: it functions more as a cleanup of the prior cycle than the opening of a new one.
Peso and Market Reaction
Currency markets responded immediately. The dollar rose about 0.7% against the peso, closing at 18.76 pesos from 18.62 the day before. Banxico itself noted in its statement that the peso had weakened since its previous decision in September — a signal that the board was weighing currency risk even as it voted to ease. Detailed minutes of the meeting are due November 19.
Mexico’s decision came on the same day as the US midterm election results, drawing less international attention than it might otherwise have received. It contrasts with the stance of the US Federal Reserve, which held rates steady at its last meeting and where officials have signalled further tightening may be needed. Market pricing gives Banxico’s December 17 meeting a 92% probability of no change, suggesting investors broadly accept the one-off framing — for now.