Mexico: Banxico cuts benchmark rate to 6.25% in surprise move

On 5 November 2026, the Bank of Mexico cut its benchmark interest rate by a quarter of a percentage point, from 6.50 per cent to 6.25 per cent, the first move after three meetings on hold. The new rate takes effect on 6 November 2026, and it reaches borrowers and savers across Mexico through the rates banks go on to set.

What happened

The five-member Governing Board voted 3-2 for the cut, with Governor Victoria Rodriguez Ceja and Deputy Governors Jose Gabriel Cuadra Garcia and Omar Mejia Castelazo backing the reduction, while Deputy Governors Galia Borja and Jonathan Heath voted to leave the rate at 6.50 per cent.

Markets had not seen it coming. The consensus was for a hold at 6.50 per cent, and of 36 economists surveyed by Citi Research this week, only six predicted a cut. The rate had sat at 6.50 per cent since the last cut in May 2026, unchanged through meetings in June, August and September, and at 6.25 per cent it is now at its lowest level since February 2022, according to MNI.

Why the bank moved

Banxico called the cut a "one-time adjustment". It said the disinflation process is continuing and that it expects to keep the rate at the new level for an extended period, judging that holding there will support inflation converging to its 3 per cent target.

That judgement sits alongside higher inflation forecasts and recent readings that point the other way. Banxico raised its forecast for headline inflation in the fourth quarter of 2026 to 3.7 per cent, from 3.5 per cent, and for core inflation to 3.7 per cent, from 3.6 per cent. Headline inflation had already risen to 3.62 per cent in the first half of October, from 3.42 per cent in mid-September, driven mainly by non-core prices, while core inflation was little changed at 3.78 per cent in mid-October. For the fourth quarter of 2027 the bank still projects both headline and core inflation at 3 per cent, unchanged, and it still expects inflation to meet the target in that quarter.

The bank's reasoning is that the economy still has slack. Growth risks remain biased to the downside, it sees no demand-side inflation pressures, and it expects pass-through to consumer prices from a weaker peso to be limited. The balance of risks for inflation, however, remains tilted to the upside.

What it means in general terms

The benchmark rate is the target for the overnight interbank rate, and it feeds through to the rates banks charge and pay. A cut tends to push variable loan rates down when lenders pass it on, and deposit rates can also move down over time, while fixed-rate borrowers feel nothing until their fixed term ends. New fixed deals are priced off market expectations rather than the benchmark rate itself, so a cut markets had not expected can move new fixed rates, but only as expectations settle.

The peso weakened after the decision, to about 18.8 per US dollar. Banxico's FIX rate for 5 November was 18.7147 pesos per dollar, against 18.6285 the day before, and the cut also narrowed the gap with the US Federal Reserve's rate to 225 basis points, a new low, after the Fed held its rate in October.

Savers may see deposit rates edge down, though each bank decides whether to pass a change on and from when, and people with variable-rate loans may see their payments fall, again only if their lender passes the cut through.

What happens next

Banxico has signalled that this was a single adjustment rather than the start of a run of cuts. Finamex chief economist Victor Gomez Ayala described it as "fine-tuning" that closed the door on an easing cycle in the same paragraph, and said the bar for another cut is high: core inflation would have to fall clearly below the bank's forecast, not just meet it.

The next decision falls on 17 December 2026, the last meeting of the year, and the rates people actually pay and receive will be set by lender announcements in the days after the decision, so those announcements are the ones to watch.