Mexico’s Slowing Economy Gives Banxico Room To Cut – But Not To Relax

Mexico’s central bank is walking a tightrope: growth is fading, inflation is easing, and politics are closing in.

The latest minutes from Banco de México’s 6 November meeting show a board cautiously using the slowdown to bring inflation back to target, while trying hard not to lose investor confidence.

After 11 consecutive cuts since August 2024, the key rate now stands at 7.25 percent, which the board describes as the upper edge of a “neutral” range.

The new minutes make clear that any future move will be small and data-driven, aimed at keeping the policy rate aligned with a path that returns inflation to the 3 percent target in an orderly way.

The backdrop is sobering. Mexico’s GDP fell 0.3 percent quarter-on-quarter in the third quarter of 2025, leaving the economy about 0.2 percent smaller than a year earlier – the first annual decline for a quarter since the post-pandemic period.

Mexico growth slows, inflation steadies

Industry shrank roughly 1.5 percent as manufacturing cooled, while services managed only marginal growth. Headline inflation, meanwhile, has slowed to about 3.6 percent, comfortably inside Banxico’s 3 percent plus-or-minus-one-point band.

Core inflation, which strips out volatile food and fuel, remains stickier at around 4.3 percent. The board still expects inflation to converge to target by the third quarter of 2026, but it sees risks tilted upward, especially if the peso weakens or services prices re-accelerate.

Behind these numbers lies a more political story. Mexico grew only 1.3–1.4 percent in 2024 and is forecast to slow further to roughly 0.5–1.0 percent this year, before a cautious rebound.

Trade tensions, uncertainty around the coming USMCA review, chronic under-investment in infrastructure and energy, and tight fiscal constraints are all weighing on momentum and on the much-promoted nearshoring boom.

The government projects a brighter 2026, with growth between 1.8 and 2.8 percent. For investors and households, the message is less optimistic: borrowing costs may creep down, but any misstep that rattles markets, weakens the currency, or revives inflation could quickly erase those gains.

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