Mexico: Central Bank decreases rates in August
Latest bank decision: At its meeting on 7 August, the Central Bank decided to lower the target for the overnight interbank interest rate by 25 basis points to 7.75%. The move brought the cumulative reduction since early 2024 to 350 basis points, though rates are still high by regional standards.
Soft GDP and inflation outlook underpin cut: A further rate cut was motivated by the weak outlook for economic activity, and the Bank’s belief that both headline and core inflation will average within the 2.0–4.0% target range in the second half of this year and beyond.
Central Bank to ease further: Almost all panelists see more monetary easing later in 2025, of 25 to 75 basis points. Much will depend on U.S. trade policy towards Mexico; additional U.S. trade restrictions could warrant additional monetary support.
Panelist insight: EIU analysts said:
“A weaker economy will provide room for Banxico to continue its easing cycle, particularly as softer domestic demand helps to bring inflation below Banxico’s 4% target ceiling, despite the higher-tariff environment. However, we expect a slower pace of cuts going forward, with the policy interest rate ending 2025 at 7.5% and reaching a terminal rate of 7% by the first quarter of 2026.”
Meanwhile, BBVA analysts said:
“The forward guidance retained the strategic ambiguity introduced in June, reinforcing a data-dependent approach, with no explicit preference for the next move. We continue to expect Banxico to deliver three additional 25bp rate cuts this year, bringing the policy rate down to 7.00% by year-end.”