Central Bank decreases rates in September

Latest bank decision: At its meeting on 25 September, the Central Bank decided to lower the target for the overnight interbank interest rate by 25 basis points to 7.50%. The move brought the cumulative reduction since early 2024 to 375 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 coming quarters.

Central Bank to ease further: Almost all panelists see more interest rate cuts by the end of next year, though future monetary easing will be more modest than it has been this year and last. U.S. trade policy towards Mexico is a key risk factor; additional U.S. trade restrictions could warrant additional monetary support.

Panelist insight: On the outlook, Itaú Unibanco analysts said: “We expect two additional 25-bp cuts to take place at the November and December meetings this year, leading to a year-end monetary policy rate of 7.0%. Additionally, our scenario incorporates another two 25-bp cuts at the first two meetings next year, with the terminal rate reaching 6.5%.” Meanwhile, BBVA analysts said: “By keeping its forward guidance unchanged, Banxico signals its intent to keep easing, with rates still moderately restrictive after today’s cut. We maintain our view that the Board will deliver two more 25bp rate cuts this year, in November and December, bringing the policy rate to 7.0% by year-end. We think further easing toward at least the midpoint neutral estimate remains warranted in light of the continued weakness of domestic demand.”

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