Central Bank decreases rates in June

Latest bank decision: At its meeting on 26 June, the Central Bank decided to lower the target for the overnight interbank interest rate by 50 basis points to 8.00%, marking the fourth straight 50 basis-point reduction. The move aligned with market expectations and brought the cumulative reduction since early 2024 to 325 basis points.

Weak economic outlook prompts cut: A further sizable rate cut was motivated by weak current economic activity as well as downside risks to the GDP growth forecast posed by U.S. tariffs. Upward revisions to the Bank’s inflation forecasts—inflation is now seen above the 4% upper bound of the target range until Q4—did not dissuade the authorities from cutting.

Central Bank to ease further: The Central Bank hinted that it might cut rates further in future meetings. Most panelists see additional monetary easing in 2025, though several see rates unchanged. Much will depend on U.S. trade policy towards Mexico; additional U.S. trade restrictions could warrant additional monetary support.

Panelist insight: Itaú Unibanco analysts said: “Given recent inflation dynamics and lower interest rate differentials with the US, we believe Banxico will opt for more cautious pace going forward, with two 25-bp cuts in August and September, leading to a terminal rate of 7.5% in 2025.” Meanwhile, BBVA analysts said: “Our baseline remains that the policy rate will reach 7.00% by year-end, near the upper end of Banxico’s estimated neutral range—essentially just shy of being restrictive. While the Board’s revised forward guidance reflects greater caution, it does not represent a break in the easing cycle in our opinion.”

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