Banxico's Measured Rate Cut To 7.5% Aims To Kick-Start Mexico's Economy

(MENAFN- The Rio Times) Banco de México lowered its key one-day interbank rate by 25 basis points to 7.50 percent on September 25. The central bank has eased rates ten times since August 2024.

It seeks to coax borrowing, spending and investment back to life amid sluggish growth and still-above-target inflation. High financing costs weighed on consumers and businesses.

Mexico's economy expanded just 0.6 percent in the second quarter of 2025. Manufacturing and services showed barely any momentum. By trimming rates, Banxico hopes cheaper loans will revive home purchases, credit-card spending and corporate projects.

Inflation ran at 3.74 percent year-on-year through mid-September, above the 3.0 percent goal. Core inflation-excluding volatile food and energy-remained sticky at 4.26 percent.

Banxico predicts headline inflation will hit its 3.0 percent target by mid-2026 if it maintains this gradual pace. The bank balances the need for stimulus against the risk of reigniting price pressures.



Behind the decision lies a wider debate. Deputy Governor Jonathan Heath dissented, favoring a pause until core inflation falls more decisively.

The majority, however, argues that prolonged high rates could deepen economic underperformance and hurt employment. They contend that modest cuts now can bolster demand without derailing disinflation.

The peso dipped slightly to around 18.55 per U.S. dollar after the announcement. Banxico must navigate global risks: U.S. policy shifts, trade tensions and geopolitical flare-ups could influence inflation and capital flows.

Its gradual approach reflects caution: the bank will review incoming data before any further moves. For foreign investors and readers abroad, Banxico's strategy signals careful balancing.

It acknowledges persistent economic weakness while safeguarding Mexico's price-stability credibility. Cheaper credit lies ahead, but the bank stands ready to adjust if inflation threats reemerge.

MENAFN26092025007421016031ID1110114961