MNI Banxico Review - August 2025: Hinting at Further Cuts

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Executive summary:

• Banxico slowed the pace of monetary policy easing in August, cutting its overnight rate by 25bps to 7.75% - as was widely expected. 
• The decision was split, with Deputy Governor Jonathan Heath the lone dissenter voting to pause the easing cycle. The committee will “assess further adjustments to the reference rate,” suggesting that additional easing is likely at upcoming meetings.
• Among sell-side, analysts expect the Board to deliver another 25bp rate cut in September, but views remain divided over the scope for further easing beyond next month.

The policy statement acknowledged that although economy grew at a faster rate during Q2-2025 than in the previous quarter, economic slack prevails while an uncertain environment poses “significant downward risks”. Headline inflation is still expected to converge to target in the third quarter of 2026, but the Bank’s core inflation forecasts were nudged slightly higher. Overall, the Board assesses that inflation risks remain “biased to the upside,” albeit less skewed than in 2021-2024. US economic policy changes are also noted to have added uncertainty to forecast, and their effects could imply pressures on inflation on both sides of the balance of risks.

Banxico maintained its forward guidance, which hints at additional rate cuts: “Looking ahead, the MPC will assess further adjustments to the policy rate.” Besides the consideration of “all determinants of inflation,” there is no conditionality alongside the guidance, providing strong argument that the Board will continue with 25bp cuts. The 4-1 vote split (Jonathan Heath was the lone dissenter in favour of no change, as was widely expected) further bolsters the argument that Banxico is not at the end of its current cutting cycle given that the delivery of the ninth consecutive rate cut had firm support.