The Bank of Mexico’s governing board voted has voted to lower its benchmark interest rate by 25 basis points to 7%, the lowest level in more than three years.

Four of the five board members, including Governor Victoria Rodríguez supported the cut but Deputy Governor, Jonathan Heath voted to hold the rate at 7.25%. The widely expected move marked the eighth consecutive rate cut in 2025 and the twelfth successive reduction since August 2024, bringing the policy rate down from 11% to 7%. 

The last time the benchmark rate was below this level was in early 2022, prior to a 50-basis-point cut to 7% in May of that year. The latest decision, approved by a 4–1 vote, came despite a recent uptick in inflation to 3.8% year over year in November, which Banxico acknowledged, while reaffirming that headline inflation is still expected to converge to the 3% target in the third quarter of 2026. 

The central bank said the decision was consistent with its assessment of the inflation outlook, taking into account exchange rate dynamics, weak economic activity, and the potential impact of changes in global trade policies, and noted that it will continue to evaluate the timing of further rate adjustments to ensure an orderly and sustained convergence of inflation to target. Banxico forecasts headline inflation of 3.7% in the final quarter of this year and the first quarter of 2026, easing to 3.3% in Q2 2026 and reaching 3% in Q3 2026, where it is expected to remain through 2027. 

The outlook is subject to upside risks, including peso depreciation, persistent core inflation at 4.43% in November, cost pressures, geopolitical or trade disruptions, and climate-related impacts, as well as downside risks such as weaker-than-expected economic activity, lower cost passthrough to consumers, and reduced inflationary pressure from a stronger Mexican peso.