Since September: Banxico Governor Rodriguez considering a rate cut – El Financiero

Since September, the Bank of Mexico (Banxico) has been considering interest rate cuts. Governor Victoria Rodriguez Ceja disclosed this in an interview with El Financiero.

A surprise 25 basis point cut last week brought Banxico’s interest rate down from 6.50% to 6.25%. The decision passed on a 3-2 vote, with Deputy Governors Galia Borja and Jonathan Heath favouring no change. Inflation has continued to climb, although it remains within the 3% plus or minus 1% range.

Turning to the exchange rate, Rodriguez Ceja said the currency remained stronger relative to the average USD/MXN exchange rate in 2025. She added: “The importance of exchange rate behavior under our free-floating regime lies in its potential impact on inflation. And we know that the pass-through of exchange rate fluctuations to consumer prices in Mexico is small. This is even more noticeable in an environment of slack.”

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On the policy outlook, she said that “maintaining the rate at its current level – 6.25% – for an extended period will support the convergence of inflation to the target and will be adequate to address external macroeconomic challenges.”

Banxico: Key Questions Answered

Bank of Mexico: Role and Mandate

As Mexico’s central bank, the Bank of Mexico, or Banxico, sets monetary policy and safeguards the value of the national currency, the Mexican Peso (MXN). Its primary objective is therefore low, stable inflation within its target range. It aims to keep inflation at or near 3%, the midpoint of a tolerance band running from 2% to 4%.

Mexican Peso: The Impact of Banxico’s Monetary Policy

Interest rate setting is Banxico’s principal monetary policy tool. To curb above-target inflation, the bank raises rates, increasing borrowing costs for households and businesses and slowing economic activity. Higher rates generally support the Mexican Peso (MXN): the resulting rise in yields makes Mexico more attractive to investors. Rate cuts, by contrast, tend to weaken MXN. A key consideration is the interest rate differential with the USD, or the expected path of Banxico’s rates relative to those of the US Federal Reserve (Fed).

Bank of Mexico: Meeting Schedule and Fed Influence

Eight meetings are held by Banxico each year. Decisions by the US Federal Reserve (Fed) strongly influence its monetary policy, so its policy-setting committee typically convenes a week after the Fed. This timing allows Banxico to respond to Federal Reserve policy measures and, at times, anticipate them. Following the Covid-19 pandemic, for instance, Banxico raised rates ahead of the Fed. It sought to reduce the risk of a sharp depreciation in the Mexican Peso (MXN) and avert capital outflows that could destabilise the country.