Banxico Cuts Again, But Signals It May Slow the Easing Cycle

Key Points

1. Mexico’s central bank cut its benchmark rate to 7.00% and said future moves will be decided meeting by meeting.
2. Inflation is no longer falling cleanly, and a dissenting vote shows the board is split on how much easing Mexico can safely absorb.
3. Uncertainty around U.S. trade and economic policy is now a key variable for Mexico’s rates, the peso, and funding costs.

Banxico closed the year with a 25-basis-point cut, lowering the target for the overnight interbank rate to 7.00% effective December 19, 2025.

It was the twelfth reduction since the easing cycle began in August 2024, but the tone shifted: the board said it will weigh the timing of any additional adjustments, taking into account all inflation drivers, rather than signaling a preset path.

The decision was not unanimous. Deputy Governor Jonathan Heath voted to hold at 7.25%, underscoring concern that policy could turn stimulative before price pressures are fully anchored.

Headline inflation rose from 3.63% in the first half of October to 3.80% in November. Core inflation climbed from 4.24% to 4.43%, mainly due to higher non-food goods.

Banxico Signals Cautious Path Amid Slow Inflation

Banxico said services inflation is easing more slowly than expected, and it still expects inflation to converge to its 3% target in the third quarter of 2026.

Growth is the counterargument. Banxico described activity as weak in the fourth quarter of 2025 and said uncertainty and trade tensions continue to pose significant downside risks.

It projects 0.3% growth in 2025 and 1.1% in 2026, a modest pickup that depends as much on business confidence as on cheaper credit.

Markets captured the crosscurrents. Banxico noted that the peso appreciated since the prior decision even as Mexican government yields rose across most maturities.

The central bank also warned that changes in U.S. economic policy keep adding uncertainty, with effects that could push inflation pressures either down or up.

For investors and households, the message is straightforward: Mexico is easing, but cautiously. In a region where governments often flirt with shortcuts, Banxico is trying to protect credibility while acknowledging a slowing economy.