The Bank of Mexico (Banxico) has reduced its benchmark interest rate by 25 basis points to 10.50%, marking the third cut this year despite ongoing peso volatility and persistent inflation.
The decision, made by a majority of 4 to 1, saw Subgovernor Jonathan Heath voting to maintain the rate. This is the first time Subgovernor Irene Espinosa, who will leave the board at the end of December, supported the reduction.
This rate adjustment brings the interest rate to its lowest level since December 2022. Analysts had anticipated a 25 basis point cut, while some expected a more aggressive move following the U.S. Federal Reserve's recent 50 basis point reduction.
In its monetary policy statement, Banxico acknowledged the peso's marked volatility and noted declining bond yields, along with weakness in productive activity. The bank also updated its inflation forecasts, projecting a target of 3% by the last quarter of 2025, down from previous estimates.
Following the announcement, the peso appreciated against the dollar, which fell to 19.61 pesos after peaking at 19.74 pesos earlier in the day, as market expectations had leaned towards a larger cut.