Banco de México lowered the target for the overnight interbank interest rate by 25 basis points to 6.25 percent on Thursday, effective November 6, in a decision most analysts had not expected. The Governing Board voted 3 to 2: Governor Victoria Rodríguez Ceja, José Gabriel Cuadra García and Omar Mejía Castelazo voted for the cut, while Galia Borja Gómez and Jonathan Heath voted to keep the rate at 6.50 percent, where it had stood since May after three consecutive meetings on hold.
The cut was a genuine surprise. In the Citi expectations survey published on November 4, 20 of 36 participants expected no move at this meeting, six expected the quarter point cut that was delivered, and ten expected the next move to come in 2027; the median forecast in Bloomberg’s analyst survey was also a hold at 6.50 percent. Ahead of the meeting, analysts cited by Bloomberg Línea had argued a cut would carry more risks than benefits, with Deputy Governor Borja saying a week earlier that 6.50 percent was a good monetary policy position while global conditions tightened.
The board said the disinflation process had continued. Headline inflation rose from 3.42 percent to 3.62 percent between the first half of September and the first half of October, on non-core prices, while core inflation eased marginally from 3.79 percent to 3.78 percent. The board judged that, with slack prevailing in the economy, the pass-through of exchange rate movements to prices would be limited, that no demand pressures are currently perceived, and that the degree of monetary restriction already in place is still operating. Mexico’s economy continued to expand in the third quarter, when gross domestic product grew 0.9 percent from the second quarter, but the board still expects slack over the forecast horizon and sees downside risks to activity.
The forecast revisions moved the other way from the rate. The board raised its headline inflation forecast for the fourth quarter of 2026 to 3.7 percent, from 3.5 percent in September, and its core forecast for the same quarter to 3.7 percent, from 3.6 percent, leaving every other quarter unchanged. Headline inflation is still expected to converge to the 3 percent target in the fourth quarter of 2027, and the board said the balance of risks to the inflation path remains tilted to the upside, citing the persistence of core inflation, the risk of a larger peso depreciation, trade disruptions and cost pressures.
Guidance pointed to a pause, not a cutting cycle. The board described the move as a one-off adjustment and said that keeping the rate for a prolonged period at the level now reached will support the convergence of inflation to target and will be appropriate for facing external macroeconomic challenges. Future decisions will take into account the observed and expected behaviour of inflation and its determinants, including exchange rate pass-through, slack and inflation expectations, the statement said. The announcement noted that the peso had depreciated since the previous decision and that the Federal Reserve had kept its rate range unchanged at its October meeting; the cut leaves Banxico’s target 225 basis points above the top of the federal funds range, down from 250 basis points before the decision.