Banxico cuts rate to 8.00%: Respite or inflation risk?

The Bank of Mexico (Banxico) decided to cut its benchmark interest rate by 50 basis points to 8.00%, a measure aimed at stimulating the economy but revealing a clear division within its Board of Governors regarding inflationary risks.

The decision, announced on June 26 and effective June 27, marks the continuation of a monetary easing cycle that began in March 2024, when the rate was at a peak of 11.25%. This move has direct implications for Mexicans' pockets, from the cost of credit to the return on savings, and reflects the crossroads facing the national economy: the need to grow in the face of the persistent specter of inflation.

The central bank's justification for continuing the rate cut is based on an assessment of the current economic outlook, which presents mixed signals. The main factors considered by the Governing Board majority were:

• Weak Economic Activity: Despite a slight expansion, Banxico perceives the Mexican economy as maintaining "slack" and weak conditions. The cuts aim to make credit cheaper to encourage investment and consumption.
• Peso Appreciation: The strength of the Mexican peso against the dollar in recent months gives the central bank room for maneuver, as a strong exchange rate helps contain inflation from imported goods.
• Global Uncertainty: Trade tensions and a complex international environment pose downside risks to Mexico's growth, making monetary stimulus necessary.

The most revealing news wasn't the cuts themselves, but rather the fact that the decision wasn't unanimous. The Governing Board voted 4 to 1, evidencing an internal debate about the path forward.

• In favor of the cut (8.00%): Governor Victoria Rodríguez Ceja and deputy governors Galia Borja Gómez, José Gabriel Cuadra García and Omar Mejía Castelazo.
• Against the cut (maintain at 8.50%): Deputy Governor Jonathan Heath.

This division reflects two economic views. The majority prioritizes the need to boost an economy showing signs of weakness. Heath's dissenting vote, however, represents the more orthodox position, which focuses on Banxico's main mandate: controlling inflation, which has shown resistance to falling.

The main argument of those who oppose aggressive cuts is the recent trend in prices. According to Banxico's own data, annual headline inflation showed an upswing, rising from 3.93% in April to 4.51% in the first half of June.

This persistence forced the central bank to adjust its own inflation forecasts upward. The new expected trajectory is shown below:

| Period | Headline Inflation Forecast (%) |

|—|—|

| 3rd Quarter 2025 | 4.1% |

| 4th Quarter 2025 | 3.7% |

| 1st Quarter 2026 | 3.4% |

| 2nd Quarter 2026 | 3.1% |

| 3rd Quarter 2026 | 3.0% (Goal achieved) |

| Source: Bank of Mexico, Press Release of June 26, 2025 | |

As the table shows, Banxico does not expect inflation to converge to its 3.0% target for another two years, in the third quarter of 2026. This reality fuels concerns that easing monetary policy too soon could prolong the period of high prices.

Banxico's decision is a calculated gamble. By lowering rates, it seeks to give the economy a break, but it assumes the risk of a longer and more winding road in the battle against inflation, a dilemma that will define Mexico's economic outlook in the coming months.