Bank of Mexico unexpectedly trims rate to 6.25% in split vote

what happened

Mexico's central bank lowered its benchmark rate by a quarter point to 6.25% on Thursday, a move markets had not expected. Most of the economists surveyed by Citi Research had predicted the rate would stay unchanged.

According to Dow Jones Newswires, the five-member board voted 3-2. Deputy governors Galia Borja and Jonathan Heath wanted to keep the rate at 6.5%. The bank called the cut a one-off adjustment and said it expects rates to stay at this level for an extended period.

Headline inflation rose to 3.62% in early October from 3.42% in mid-September, while core inflation stood at 3.78%. The bank still expects inflation to return to its 3% target in the fourth quarter of 2027. Economic output grew 1.4% in the second quarter from the first and 0.9% in the third from the second, seasonally adjusted.

why it matters

For markets, the decision carries two signals. Lower Mexican rates shrink the yield advantage of holding pesos, which can weigh on the currency, while bonds gain as the bank signals rates will remain here for a long time. The central bank also said growth risks are tilted to the downside and that pass-through from a weaker peso to prices should be limited.

market impact

Peso and Mexican bonds: the rate cut weighs on the currency and supports local debt prices

• ▼Mexican peso pressure down — lower rates reduce the yield on pesos for investors
• ▲Mexican government bonds pressure up — a lower policy rate supports prices of existing debt

tags

instruments