Overnight interbank rate cut to 6.50 percent
Banco de México's Governing Board decided to lower the target for the overnight interbank interest rate by 25 basis points to 6.50 percent, effective May 8, 2026. This decision concludes the easing cycle that began in March 2024.
Easing cycle concludes with 25bp cut
Banco de México's Governing Board lowered the overnight interbank interest rate by 25 basis points to 6.50 percent, effective May 8, 2026.
This decision, approved by majority vote, concludes the easing cycle initiated in March 2024.
Victoria Rodríguez, Gabriel Cuadra, and Omar Mejía voted in favor, while Galia Borja and Jonathan Heath preferred to maintain the rate at 6.75 percent.
The Board cited a decrease in headline inflation from 4.63 to 4.45 percent between March and April 2026, with core inflation also falling from 4.46 to 4.26 percent.
Economic activity contracted in the first quarter of 2026, leading to greater economic slack than anticipated.
The Mexican peso appreciated, and short- and medium-term government interest rates decreased.
Globally, economic activity grew in Q1 2026, but major advanced economies saw increased headline inflation due to energy prices, while core inflation persisted.
The Federal Reserve kept its rate unchanged in April.
Inflation outlook and upside risks
The Governing Board estimates it will be appropriate to maintain the reference rate at its current level, judging the monetary policy stance well-suited for macroeconomic challenges.
Headline inflation expectations for the end of 2026 rose, though longer-term expectations remained stable above target.
Headline inflation forecasts were revised upwards for the second and third quarters of 2026 due to anticipated higher non-core inflation, while core inflation forecasts were unchanged.
Headline inflation is still expected to converge to the target in the second quarter of 2027.
The balance of risks for the inflation trajectory remains biased to the upside, citing potential disruptions from foreign trade policies, geopolitical conflicts, and persistent core inflation.
Downside risks include lower-than-anticipated economic activity in Mexico or the United States.
A cautious pause
Banxico's decision to conclude its easing cycle reflects a delicate balance between slowing domestic activity and persistent inflation risks.
The explicit commitment to maintain the current rate signals ongoing vigilance against upside pressures, despite the recent cut.
This cautious stance prioritizes anchoring inflation expectations, even as growth concerns linger.