Banco de México Cuts Reference Rate to 7.00%
Amid Weak Growth and Persistent Inflation Concerns
Mexico City, December 18, 2025 – The Governing Board of Banco de México (Banxico) has decided to lower the target for the overnight interbank interest rate by 25 basis points, effective December 19, 2025, setting the new rate at 7.00%. This decision continues the rate-cutting cycle and was based on an assessment of the current inflationary outlook.
The Board reached this decision by majority vote, with four members—Victoria Rodríguez, Galia Borja, Gabriel Cuadra, and Omar Mejía—voting in favor of the reduction, while Jonathan Heath voted to maintain the target at 7.25%.
Economic and Global Context
The rate reduction was informed by several factors, including the behavior of the exchange rate, the current weakness of economic activity, and the possible impact of changes in global trade policies. Domestically, economic activity is anticipated to have remained weak during the fourth quarter of 2025. The environment of uncertainty and ongoing trade tensions continues to pose significant downward risks to the Mexican economy. Since the previous monetary policy announcement, the Mexican peso appreciated, although Mexico’s government interest rates increased for most terms.
Globally, the rate of expansion of world economic activity is estimated to have continued declining in the fourth quarter of 2025. Due to trade tensions, the world economy and that of the United States are both anticipated to register lower economic growth in 2025 and 2026 compared to 2024. The Federal Reserve also recently lowered its reference rate by 25 basis points. Among the most relevant global risks are the escalating trade tensions and intensified geopolitical turmoil, which could affect inflation, economic activity, and volatility in financial markets.
Inflation Developments and Forecast Adjustments
Recent figures indicate a rise in inflation. Between the first fortnight of October and November, headline inflation increased from 3.63% to 3.80%, while core inflation rose from 4.24% to 4.43%. The increase in core inflation was primarily driven by a rise in non-food merchandise inflation.
In response to these developments, headline and core inflation forecasts were adjusted upwards for the fourth quarter of 2025 and the subsequent two quarters. This revision mainly reflects a more gradual-than-expected reduction in services inflation. Despite these adjustments, headline inflation is still expected to converge to the 3% target in the third quarter of 2026.
The balance of risks for the inflation trajectory remains biased to the upside, although this bias is less pronounced than that observed between 2021 and 2024. Upside risks include the depreciation of the Mexican peso, persistence of core inflation, cost-related pressures, disruptions due to geopolitical conflicts or foreign trade policies, and climate-related impacts. Downside risks include lower-than-anticipated economic activity and lower pressures resulting from the appreciation of the national currency.
Future Policy Commitment
Looking ahead, the Governing Board stated it will evaluate the timing for additional reference rate adjustments. Actions will be implemented to ensure the reference rate remains consistent with the trajectory needed for an orderly and sustained convergence of headline inflation to the 3% target during the forecast period. Banxico reaffirmed its commitment to its primary mandate to consolidate an environment of low and stable inflation.