MNI BANXICO WATCH: One More Cut Signaled, Pause Could Be Near

The Central Bank of Mexico's shift in forward guidance signaled it could be nearing the end of its monetary easing cycle or at least becoming more data-dependent after Thursday’s decision to lower borrowing costs by 25 basis points brought the official interest rate to 7.25%.

"Looking ahead, the Board will evaluate reducing the reference rate. It will take into account the effects of all determinants of inflation," the English version of the statement said. Officials had previously stated they would "assess further adjustments to the reference rate."

One possible reason for the shift, which removes the plural language on cuts, could be that Banxico is opening the door to a pause at its first meeting of 2026 if core inflation remains resilient. Another rate reduction at the December meeting is still likely. 

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 fourth time, voting to hold the rate at 7.50%. (See MNI BANXICO WATCH: Another 25BP Cut Expected, Focus On Guidance)

INFLATION IMPROVEMENT 

"Between the first fortnight of September and the first fortnight of October, headline inflation decreased from 3.74 to 3.63%, while core inflation registered a minor variation, from 4.26 to 4.24%," the statement highlighted.

Headline inflation remains within the central bank's 3% target range, which allows for a one-percentage-point variation in either direction. The board still expects headline inflation to converge to the 3% target in the third quarter of 2026.

The document reiterated that changes in economic policy by the U.S. administration continue to add uncertainty to the forecasts. "Their effects could imply inflationary pressures on both sides of the balance."

The statement emphasized again activity weakness, noting the environment of uncertainty and trade tensions poses "significant downward risks."

"The Mexican peso depreciated slightly. During the third quarter of 2025, economic activity contracted with respect to the second quarter."