The Bank of Mexico (Banxico) lowered its benchmark interbank overnight interest rate by 25 basis points to 10.50% on Thursday, marking its second consecutive rate cut and third reduction of the year. In a divided 4-1 decision, the five-member Governing Board recognized that the domestic inflationary panorama has begun to improve, allowing for calibrated adjustments while ensuring that monetary policy remains in restrictive territory to anchor long-term expectations.
Governor Victoria Rodríguez Ceja and Deputy Governors Galia Borja, Irene Espinosa, and Omar Mejía voted in favor of the cut, while Deputy Governor Jonathan Heath cast the lone dissenting vote, advocating to maintain the policy rate unchanged at 10.75% until core services inflation demonstrates more decisive downward momentum.
Calibrated Easing Follows Federal Reserve Cut and Easing Food Prices
The monetary easing step comes after national statistics agency INEGI reported that annual headline inflation slowed to 4.66% in the first half of September, reversing a summer spike driven by volatile agricultural products. Crucially, core inflation—which excludes volatile energy and fresh food prices and serves as a cleaner indicator of underlying price trends—moderated for a twentieth consecutive fortnight, declining to 3.95% to breach the central bank's upper tolerance threshold.
Banxico's decision also mirrors the monetary shift by the US Federal Reserve, which enacted an aggressive 50-basis-point rate reduction last week. By matching the Fed's easing direction, Banxico preserved an ample 550-basis-point interest rate differential, shielding the Mexican peso from sudden capital outflows while providing relief to domestic borrowing costs.
“The Board considers that the inflationary environment has begun to improve, allowing for calibrated adjustments to the monetary stance while maintaining policy in restrictive territory.”
Monetary Restraint Maintained Amid Peso Volatility and Fiscal Transition
The Mexican peso traded relatively stable around 19.60 per US dollar following the statement. Currency markets had experienced heightened volatility in August and September due to judicial constitutional reforms pushed by the outgoing administration of President Andrés Manuel López Obrador and broader fiscal deficits anticipated ahead of President-elect Claudia Sheinbaum's inauguration on October 1.
Looking ahead, the Governing Board signaled that further calibrated rate reductions could be implemented if the disinflationary process proceeds as anticipated. Financial institutions widely forecast that Banxico will lower the policy rate by another 25 basis points in November, bringing borrowing costs to 10.25% by year-end.
Comments (0)
Log in to join the discussion.