Gradual rate cuts, central bank board proposes

The governing board of the Bank of Mexico (BdeM) confirmed that it will make gradual cuts to the reference rate – which determines the cost at which companies and people are financed – and will be conditional on macroeconomic data during 2026, the minutes of the most recent monetary policy meeting in 2025 suggest.

On December 18, the BdeM revealed that it decided to reduce the goal of the overnight interbank interest rate by 0.25 percentage points to 7 percent.

After 12 consecutive meetings in which the interest rate has been reduced, from 11 to 7 percent, the governing board of the Mexican central bank “will assess the moment to make additional adjustments. It will take into account the effects of all the determinants of inflation. The actions implemented will be such that the reference rate is consistent, at all times, with the trajectory required to promote the orderly and sustained convergence of general inflation to the 3 percent goal.”

Inflation in range

The National Institute of Statistics and Geography revealed yesterday morning that general inflation closed 2025 at 3.69 percent annually, within the price stability range of the BdeM and its lowest level for a year-end since 2020; However, this was not the case for underlying inflation – which determines the trajectory of prices in the medium and long term – which closed the year at 4.33 percent, the highest since 2023.

Jonathan Heath, deputy governor of the BdeM and who cast the dissenting vote in the last meeting of 2025, argued that we must “meticulously evaluate the time it will take not only to reverse the growing upward trend that core inflation has shown, but also to calibrate the magnitude of the possible reversal of non-core inflation. This involves adjusting our forecast to a more credible trajectory.”

The impact of the modifications to the special tax on production and services will soon be reflected, which will make soft drinks, serums, cigarettes and, eventually, premium gasoline more expensive, as well as the increase in tariff rates. The majority of the board anticipates that these increases will have only one effect on inflation and this will be temporary.