The Bank of Mexico (Banxico) board has voted to cut the central bank’s benchmark interest rate just two days after data showed that the annual inflation rate rose to 4.63% in the first half of March.
The 25-basis-point cut will take effect on Friday, reducing Banxico’s key rate to 6.75%.
Three of five board members including Banxico Governor Victoria Rodríguez voted in favor of reducing the rate to 6.75% while the other two supported maintaining the rate at 7%.
In a statement announcing the reduction, Banxico acknowledged that annual headline inflation increased to 4.63% in the first fortnight of March — its highest level since 2024 — but noted that core inflation “remained practically unchanged” between January and March, declining to 4.46% from 4.47%.
Despite inflation increasing every month so far this year, Banxico said that the headline rate is still expected to converge to the bank’s 3% target in the second quarter of 2027.
In making its latest monetary policy decision, Banxico said that its board “took into account the observed levels of the exchange rate, the weakness of economic activity, and the level of monetary restriction [already] implemented.”
Revised figures boost Mexico’s 2025 GDP growth to 0.8%
It also said that the board “deemed that the monetary policy stance attained is adequate to face the challenges posed by an extension and escalation of the Middle Eastern conflict and its outcome.”
“… Looking ahead, depending on the evolution of macroeconomic and financial conditions, the Board will evaluate the appropriateness and timing for an additional reference rate cut,” Banxico said.
The decision to cut Banxico’s key rate by 25 basis points came after the central bank’s board last month voted to maintain borrowing costs at 7%.
Between August 2024 and December 2025, the Bank of Mexico cut its benchmark interest rate after 12 consecutive monetary policy meetings, shaving a total of four percentage points off borrowing costs in the period.
Banxico’s cut was not anticipated by most analysts
Of 37 banks, brokerages and research organizations consulted by Citi in its latest “Mexico Expectations Survey,” only 14 said they expected the Banxico board to vote in favor of an interest rate cut at its March monetary policy meeting. Seventeen respondents said they expected the next rate cut in May, while six believed that a reduction wouldn’t come until June.
On X, the director of economic analysis at Banco Base, Gabriela Siller, wrote that she was surprised by the Banxico board’s interest rate decision.
A mi sí me sorprendió el recorte de Banco de México.
Aunque en su comunicación estaba abierta la puerta a más recortes, con el repunte significativo de la inflación y los riesgos al alza pensé que serían más cautelosos.
— Gabriela Siller Pagaza (@GabySillerP) March 26, 2026
Although Banxico’s “communication left the door open to more cuts, with the significant increase in inflation and the upside risks, I thought they would be more cautious,” she wrote.
Juan Pablo Spinetto, Latin America columnist for Bloomberg Opinion, also offered an opinion on Banxico’s latest rate cut. On X he wrote:
“Banxico must be the only central bank that says:
– That the risks to inflation remain ‘biased to the upside.’
– That geopolitical risks and risks in the U.S. ‘could imply pressures on inflation.’
– That raises its forecasts for inflation in Mexico in 2026.
And despite all this, [the bank] cuts its interest rate.”
The outlook for inflation in Mexico
Compared to the forecasts it made in February, Banxico raised its inflation outlook for three of four quarters of 2026.
The central bank anticipates average headline inflation of 4.1% in the first quarter of 2026, up from a previous prediction of 4%.
It increased its Q2 inflation forecast from 3.8% to 4% and lifted its Q3 outlook from 3.6% to 3.7%. Beyond that, Banxico made no changes to its February forecasts.
The bank anticipates inflation of 3.5% in the final quarter of this year, 3.2% in the first quarter of 2027 and 3% in subsequent quarters until the end of the forecast horizon in Q1 of 2028.
Banxico noted that its forecasts are subject to various upside and downside risks.
On the upside it identified:
- Disruptions due to foreign trade policies or to an inflationary impact from geopolitical conflicts.
- Cost-related pressures.
- Persistence of core inflation.
- A trend towards depreciation by the Mexican peso. (The peso depreciated on Thursday to close at 17.95 to the US dollar, according to Banxico).
- Climate-related impacts.
The downside risks identified by Banxico were:
- Lower-than-anticipated economic activity in Mexico and/or the United States.
- A lower pass-through from increased costs.
- Lower pressures stemming from the appreciation the national currency has been registering since last year.
Banxico said that “risks for the trajectory of inflation remain biased to the upside.”
“The changes in economic policy by the U.S. administration and the escalation of geopolitical conflicts add uncertainty to the forecasts,” the bank said in its monetary policy statement.
“Their effects could imply pressures on inflation,” it added.
With reports from El Financiero and El Economista
