The Bank of Mexico’s governing board voted on Thursday to lower the bank’s benchmark interest rate by 25 basis points to 7%, the lowest level in more than three years.
Four of the five members of the central bank’s board, including Governor Victoria Rodríguez, voted in favor of a 25-basis-point cut. Deputy Governor Jonathan Heath voted in favor of maintaining the bank’s key rate at 7.25%.
Con la presencia de todos sus miembros, la Junta de Gobierno del #BancodeMéxico decidió por mayoría disminuir la Tasa de Interés Interbancaria a 1 día, a un nivel de 7.00% con efectos a partir del 19 de diciembre de 2025. Consulta el comunicado en: https://t.co/zCkIlko93t pic.twitter.com/OnJMakiR4t
— Banco de México (@Banxico) December 18, 2025
The widely-expected interest rate cut was the Bank of Mexico’s eighth successive easing of monetary policy in 2025. The bank has now lowered its benchmark interest rate after 12 consecutive monetary policy meetings dating back to August 2024.
With those 12 cuts, the central bank’s key interest rate has gone from 11% to 7%.
The last time the Bank of Mexico’s interest rate was lower was in early 2022 prior to a 50-basis-point reduction to 7% in May of that year.
The latest cut was endorsed in a 4-1 vote despite a recent increase in inflation, which ticked up to a 3.80% annual rate in November.
The Bank of Mexico (Banxico) acknowledged that increase in a statement announcing the latest interest rate cut, but said that “headline inflation is still expected to converge to the [3%] target in the third quarter of 2026.”
The bank said that its governing board’s decision to cut the benchmark interest rate by 25 basis points was “consistent with the assessment of the current inflationary outlook.”
“In particular, it took into account the behavior of the exchange rate, the weakness of economic activity, and the possible impact of changes in trade policies worldwide,” Banxico said.
It said that the board “will evaluate the timing for additional reference rate adjustments,” taking into account “the effects of all determinants of inflation.”
“Actions will be implemented in such a way that the reference rate remains consistent at all times with the trajectory needed to enable an orderly and sustained convergence of headline inflation to the 3% target during the forecast period,” Banxico said.
The inflation outlook
Banxico is forecasting that Mexico’s annual headline inflation rate will be 3.7% across the final quarter of the year and remain at that level through the first quarter of 2026. Those forecasts are up slightly from the 3.5% projections the central bank made last month.
Banxico anticipates a reduction to a 3.3% headline rate in the second quarter of next year, followed by an additional easing to 3% in Q3 of 2026. The central bank forecasts that the headline rate will remain at 3% in the fourth quarter of 2026 and throughout 2027.
The bank said that its forecasts are subject to both upside and downside risks.
On the upside are:
- A depreciation of the Mexican peso, which was trading at 18.01 to the US dollar shortly after 2 p.m. Thursday.
- Persistence of core inflation, which rose to an annual rate of 4.43% in November.
- Cost-related pressures.
- Disruptions due to geopolitical conflicts or foreign trade policies.
- Climate-related impacts.
The identified downside risks to Banxico’s inflation forecasts are:
- Lower-than-anticipated economic activity. (The OECD is predicting the Mexican economy will grow 1.2% in 2026.)
- A lower passthrough to consumers of increased costs.
- Lower pressures stemming from an appreciation of the Mexican peso.
Mexico News Daily
