The Bank of Mexico cut its benchmark interest rate to its lowest level since May 2022, signalling that it may consider further easing at future meetings.

This move comes amid ongoing concerns about global trade tensions and sluggish economic growth in Latin America’s second-largest economy. Banxico, as the central bank is known, lowered its benchmark rate by 25 basis points to 7.5 per cent in a divided vote. 

Deputy governor Jonathan Heath was the only member of the five-person board who voted to keep the rate unchanged at 7.75 per cent. The decision was largely anticipated by the market. However, the bank continues to face two major challenges: reducing inflation while also supporting economic growth. 

Easing monetary policy could stimulate activity, but it also risks fueling price pressures. In making the rate cut last Thursday (September 25), Banxico declared that it considered “weak economic growth” and shifting global trade conditions in its decision to reduce borrowing costs.

Concerns about persistent inflation 

The fact that the bank opted for a quarter-point cut rather than a half-point cut, which it had implemented four times earlier this year, highlights concerns about persistent inflation, particularly in the closely watched core index.

Core inflation, which strips out volatile food and energy prices, rose to 4.26 per cent in the first half of September.

Banxico targets inflation at three per cent, within a range of plus or minus one percentage point. Headline inflation also accelerated, reaching 3.74 per cent in the first half of September, up from 3.49 per cent in the first half of August. 

In updated forecasts last week, the bank raised its estimate for year-end core inflation to 4.0 per cent in the fourth quarter, compared with a previous forecast of 3.7 per cent. In its quarterly report in August, Banxico said that although Mexico’s economy remains weak, it continues to show resilience in the face of an uncertain global environment.

Last month, the bank raised its 2025 growth forecast to 0.6 per cent, up from 0.1 per cent. It projects the economy will expand by 1.1 per cent in 2026.