The Bank of Mexico cut its benchmark interest rate by 25 basis points to 7% in its monetary policy decision on December 18, 2025. This move aligns with expectations for inflation to converge to the 3% target in the third quarter of 2026, despite recent inflationary pressures. The cut supported a slight appreciation of the Mexican peso against the dollar.
The Bank of Mexico (Banxico) ended its rate-cutting cycle for 2025 with a 25 basis-point reduction, bringing the benchmark rate to 7%. This decision, announced on Thursday, December 18, follows the November adjustment to 7.25%. In its statement, Banxico noted that since the last meeting, government bond yields rose across most maturities, the peso appreciated, and economic activity remained weak in the fourth quarter.
Annual general inflation rose between October and November due to increases in non-food merchandise, reaching 3.83% in November, within the tolerance band (2-4%) around the 3% target. However, underlying inflation hit 4.43%, exceeding the upper limit. Banxico expects inflation to converge to the target in the third quarter of 2026, factoring in uncertainties like U.S. President Donald Trump's policies and global trade tensions.
"The Governing Board, with all members present, decided by majority to reduce by 25 basis points the target for the Overnight Interbank Interest Rate to a level of 7.00%", the central bank stated, citing exchange rates, economic weakness, and potential commercial policy impacts.
Analysts had anticipated this cut, per the Citi Expectations Survey of December 17, forecasting 7% at year-end 2025 and 6.50% for 2026. Monex predicts a pause in February 2026, followed by two cuts to 6.50%. Liam Peach of Capital Economics foresees an intermittent cycle to 6.25% by end-2026. Alfredo Coutiño of Moody's Analytics warned that elevated underlying inflation raises risks of incomplete adjustment.
In the foreign exchange market, the peso appreciated 0.07% to 18.0032 per dollar, trading at 18.47 pesos in bank windows. This boost reflects the market's assimilation of the monetary decision.
