Banco de Mexico Cuts to 7.25%
Banco de México Cuts Key Interest Rate to 7.25% Amid Economic Weakness and Global Trade Tensions
Mexico City, November 6, 2025 — Banco de México’s (BoM) Governing Board has decided to continue its rate-cutting cycle, lowering the target for the overnight interbank interest rate by 25 basis points to 7.25%. This new rate is effective starting November 7, 2025.
The decision was reached by a majority vote of the Board. Victoria Rodríguez, Galia Borja, Gabriel Cuadra, and Omar Mejía voted in favor of the reduction. Conversely, Jonathan Heath voted to maintain the target for the overnight interbank interest rate at 7.50%.
Rationale and Domestic Economic Context
The monetary policy action was consistent with the Board’s assessment of the current inflationary outlook. Key factors influencing the decision included the weakness of economic activity and the behavior of the exchange rate.
Evidence of domestic weakness includes the contraction of Mexico’s economic activity during the third quarter of 2025 relative to the second quarter. Furthermore, the environment of uncertainty and persistent trade tensions continues to pose significant downward risks to economic activity. Since the previous monetary policy decision, the Mexican peso depreciated slightly, while Mexico’s short- and medium-term government interest rates decreased.
Inflation Trajectory and Outlook
Recent data indicates a mild decline in headline inflation. Between the first fortnight of September and the first fortnight of October 2025, headline inflation decreased from 3.74% to 3.63%. However, core inflation showed greater resistance to decline, registering only a minor variation from 4.26% to 4.24% during the same period.
The central bank adjusted headline and core inflation forecasts slightly for the short term. The BoM still expects headline inflation to converge to the 3% target in the third quarter of 2026. While headline inflation expectations for the end of 2025 were revised downwards, expectations for longer terms remain relatively stable at levels above the target.
Risks and Global Environment
Although the Board deemed it appropriate to continue the rate-cutting cycle, the balance of risks for the trajectory of inflation remains biased to the upside. This bias, however, is less pronounced than the one faced between 2021 and 2024.
Key upside risks identified include:
The persistence of core inflation.
The depreciation of the Mexican peso.
Disruptions stemming from geopolitical conflicts or foreign trade policies.
Cost-related pressures and climate-related impacts.
Globally, the decision took into account the possible impact of changes in trade policies worldwide. World economic activity is anticipated to have expanded at a lower rate in the third quarter of 2025 compared to the previous quarter. Given current trade tensions, both the world economy and the United States economy are expected to decelerate this year and in 2026 relative to 2024. Furthermore, the US Federal Reserve recently lowered its reference rate by 25 basis points.
Looking ahead, the Governing Board stated that it will evaluate reducing the reference rate further, ensuring that the rate remains consistent with the trajectory needed to achieve an orderly and sustained convergence of headline inflation to the 3% target. The central bank reaffirms its commitment to its primary mandate of consolidating an environment of low and stable inflation.