The Bank of Mexico (Banxico) has cut its interest rate to 7.25% again, citing economic cooling. Governor Victoria Rodríguez stated in an interview with El Financiero that this decision was already priced into the market, so it would not be a surprise. Last week, the central bank made a 25-basis-point adjustment, bringing the rate to 7.25%, primarily valuing the cooling of the economy in the last quarter. The decision was not unanimous, as Deputy Governor Jonathan Heath voted for a pause, warning of persistent pressures in the core component and suggesting that the relief from non-core sectors could reverse in the coming months. Following the decision, it was announced that inflation fell to 3.75% in October, mainly due to lower prices in the agricultural sector. However, the services and food sectors remain above the general inflation rate and the central bank's target range. Against this backdrop, analysts warn that the central bank must act with greater caution, although the tone of Banxico's communication already left the door open for further cuts. 'Going forward, the Governing Board will consider cutting the reference rate,' the statement said. Governor Victoria Rodríguez signaled to the market that there will be another rate cut in December, as the market estimates. Unlike other meetings, the communication referred to 'cuts' in plural, giving the market a clear signal of another reduction in December, while pausing the cycle in the first quarter of 2026. Rodríguez justified the move by stating, 'There are different factors that we foresee will also help mitigate inflationary pressures going forward.' When asked about the difference between market and central bank projections, which aim to hit the 3% target by the end of next year, she attributed the discrepancy to her analysis incorporating 'an endogenous response of monetary policy to inflation.' The document also reads: 'In my opinion, I see a high probability of a cut of the same magnitude in December. It will take into account the effects of all the determinants of inflation.'
