MNI BANXICO WATCH: Cuts To Continue, Two 2025 Meetings Left

The Central Bank of Mexico indicated Wednesday its 25-basis-point rate cut to 7.50% will not be the last, and said that the board will continue evaluating “further adjustments” at upcoming meetings.

The use of the plural in the forward guidance suggests Banxico will end the year with reductions at all remaining meetings, in November and December, possibly of 25 basis points each.

In the first half of the year, Banxico delivered four consecutive 50-basis-point cuts before slowing the pace to 25 bps in July amid sticky core inflation.

Deputy Governor Jonathan Heath dissented for a third time, voting to hold the rate at 7.75%. The split decision came amid external uncertainty and persistent core inflation.

Banxico said today's move took into account the behavior of the exchange rate, the weakness of economic activity, and the potential impact of changes in global trade policies.

STICKY CORE INFLATION

Although the board still expects headline inflation to converge to the 3% target in the third quarter of 2026, it revised the core inflation forecast upwards to 4% at the end of 2026, from 3.7%.

Mexico's INPC annual inflation was 3.57% in August, up from 3.51% in July. Core inflation was 4.23%, stable from a month earlier.

Headline inflation has returned to within the target range, supporting the case for continued rate cuts, though core inflation remains high. The goal allows for a 1 percentage point variation in either direction.

The statement emphasized activity weakness, noting the environment of uncertainty and trade tensions poses "significant downward risks." (See MNI BANXICO WATCH: 25BP Cut Expected, Eyes on Forward Guidance)

"The Federal Reserve lowered its reference rate by 25 basis points and anticipates to implement further reductions in the remainder of the year. In that context, U.S. government interest rates declined overall, and those for the short term decreased significantly. The U.S. dollar depreciated slightly," it added.