The Bank of Mexico (Banxico) lowered its benchmark interest rate by 25 basis points on Thursday, setting the target at 7.75%, the lowest level in over three years. This marks the fifth interest rate cut of 2025, continuing a cautious easing cycle as inflation continues to slow.
The unanimous decision by the central bank’s governing board reflects confidence that inflation is trending toward Banxico’s target range of 3% ±1%, although board members reiterated the need for vigilance in monetary policy.
First quarter-point cut after four larger ones
This latest move is a shift in pace following four consecutive 50-basis-point cuts earlier in the year. By reducing the rate by only 25 points this time, Banxico signaled a more measured approach as it monitors inflation behavior and domestic demand.
In its official statement, the board noted that inflationary pressures have subsided, but warned that risks remain. “While recent data confirms a disinflationary trend, uncertainties around international energy prices, climate impacts on food supply, and global monetary tightening persist,” the bank said.
As of July, annual headline inflation in Mexico fell to 3.51%, within Banxico’s acceptable range for the first time in two years. Core inflation, which excludes volatile food and energy prices, remains higher at 4.23%, but has also eased from earlier peaks.
Monetary policy recalibration tied to global and local dynamics
Economists view this decision as part of a broader recalibration by Mexico’s central bank, balancing growth concerns with inflation control. The global monetary environment has shifted, with several central banks, including the Federal Reserve and the European Central Bank, signaling that rate hikes may be nearing an end.
For Mexico, the context includes a slowing pace of economic growth, strong peso performance, and lower food inflation. These factors have given Banxico more room to support economic activity while keeping inflation in check.
Gabriela Siller, director of economic analysis at Banco Base, said the smaller cut signals “a desire to avoid over-stimulating the economy while still supporting recovery.” She noted that real interest rates in Mexico remain high in historical terms, leaving room for further cuts later in the year if inflation remains subdued.
Analysts forecast more cuts, but at a slower pace
Financial markets have already priced in at least two more 25-point cuts before the end of 2025, though some analysts suggest the bank could pause in September to assess the impact of this latest adjustment.
The decision also comes as President Claudia Sheinbaum’s administration pursues major public investment projects and a gradual expansion of social spending. The central bank emphasized its autonomy in the face of these initiatives, stating that “monetary policy remains guided solely by the inflation outlook and macroeconomic stability.”
Banxico’s forward guidance reiterated its commitment to “orderly and gradual adjustments” and noted that future changes will depend on the trajectory of both inflation and economic activity.
Rate at lowest point since mid-2022
With the benchmark rate now at 7.75%, borrowing costs in Mexico are at their lowest since mid-2022, when the central bank was still in the midst of an aggressive hiking cycle aimed at curbing post-pandemic inflation.
At its peak in 2023, the rate stood at 11.25%, making Mexico one of the most hawkish major economies at the time. The disinflationary trend that began in late 2024 accelerated in 2025, allowing Banxico to reverse course.
The interest rate affects everything from consumer credit cards and mortgages to corporate borrowing and government debt. Lower rates can boost spending and investment, but also risk reigniting inflation if used prematurely.
Banxico stressed that its decisions would remain data-dependent. “We will continue to monitor all available indicators,” the statement read, “and act decisively to ensure inflation remains under control.”
The central bank’s next monetary policy announcement is scheduled for September 26.
