MNI BANXICO WATCH: Guidance Shift Suggests Banxico Pause

The Central Bank of Mexico changed its forward guidance in a way that could suggest a pause at the next meeting, or at least a shift toward a more data-dependent stance, after Thursday’s decision to cut interest rates by 25 basis points to 7.00%.

The board did not signal a cut at the next meeting, as it had done previously, and instead said it will "evaluate the timing for additional reference rate adjustments." In the previous decision in November, Banxico had said it would "evaluate reducing the reference rate."

In other words, Banxico signaled additional cuts, but not necessarily at the next meeting. As justification for a more cautious stance, the board cited the resilience of services inflation. Deputy Governor Jonathan Heath again dissented in favor of holding steady.

"Headline and core inflation forecasts were adjusted upwards for the fourth quarter of 2025 and subsequent two quarters. This adjustment responds mainly to a more gradual-than-expected reduction in services inflation, as the increase registered in merchandise inflation has a lesser impact on the forecast revision," the statement said.

Banxico also emphasized that since the previous monetary policy decision, the Mexican peso has appreciated. "Economic activity is expected to have remained weak in the fourth quarter of 2025. The environment of uncertainty and trade tensions continues posing significant downward risks."

INFLATION TREND

The document noted that between the first fortnight of October and the month of November, headline inflation increased from 3.63% to 3.80%, while core inflation rose from 4.24% to 4.43%, mainly due to an increase in non-food merchandise inflation.

"Headline inflation expectations for the end of 2025 were revised slightly downwards, while those for longer terms continued relatively stable at levels above target." (See MNI BANXICO WATCH: Another 25BP Cut To 7% Likely, Split Again)

The board also said that fiscal adjustments announced for the beginning of next year are estimated to have a temporary effect, "not necessarily proportional, on prices."

"Nevertheless, a comprehensive assessment of their impact will require incorporating additional information as it becomes available. In this regard, the Governing Board will evaluate updating the inflation forecast to reflect the effects associated with said measures more accurately."

Although the balance of risks to the inflation trajectory within the forecast horizon remains tilted to the upside, the board reiterated that this bias is less pronounced than it was between 2021 and 2024.