Mexico Interest Rate

The Bank of Mexico cut its benchmark interest rate by 25bps to 7% in its December meeting, as expected, bringing it to its lowest level since May 2022. This marks the twelfth consecutive rate cut in an easing cycle that began in March last year, aimed at stimulating economic growth amid sluggish GDP performance and uncertainty over US tariffs. Mexico’s GDP shrank 0.2% in Q3 after stagnating in Q2, prompting Banxico to halve its 2025 growth forecast to 0.3%, though it expects 1.1% in 2026 and 2% in 2027. The decision was split, with Deputy Governor Jonathan Heath voting to hold, reflecting concerns over persistent inflation. Headline inflation rose to 3.8% in November, slightly above expectations, while core inflation, excluding volatile items, remains stubbornly above 4%. Despite near-term inflation risks, Banxico projects inflation will return to its 3% target by Q3 2026.