MediumIV Macro Policy & Sovereign Debt5 November 2026, Thursday
Banxico defies expectations and cuts its rate to 6.25%
Mexico's central bank cut its policy rate by 25 basis points to 6.25% on 5 November, although 30 of the 36 institutions in Citi's survey had expected a hold. The decision passed 3–2, and the same day the bank raised its fourth-quarter inflation forecast from 3.5% to 3.7%.
According to the Rio Times, Governor Victoria Rodríguez Ceja and deputy governors José Gabriel Cuadra and Omar Mejía backed the cut, while Galia Borja and Jonathan Heath argued for staying at 6.50%. Headline inflation rose from 3.42% in the first half of September to 3.62% in the first half of October, with core steady at 3.78%. The bank wrote that it expects to keep the rate at 6.25% for an extended period.
The constraint is not inflation but growth, and the bank's assumption about currency pass-through. In the statement cited by Mexico News Daily, the bank said slack in the economy would limit the pass-through of exchange rate moves to prices. Its fourth-quarter core inflation forecast rose from 3.6% to 3.7%, and the return to the 3% target was pushed out to the fourth quarter of 2027.
The peso weakened on the decision, with the dollar reaching 18.96 pesos during the day. Mexico News Daily put the close at 18.75 and the Rio Times at 18.76, against 18.62 the previous day according to the Rio Times. The minutes are due on 19 November and the next decision on 17 December; on the morning of 6 November Polymarket priced a 92% chance of a hold in December.
Talay assessment
Bottom line
Banxico cut rates while raising its inflation forecast, showing that the board has shifted its priority to weak growth and is betting that currency pass-through will stay low. The 3–2 vote and a loss of close to 1% in the peso suggest the bet is contested. The most likely path is that the rate stays at 6.25% until mid-2027.
Likely effects
- Mexican pesoNegativeWeeks
A narrower rate differential makes the peso more sensitive to US rate expectations; the dollar rose to 18.96 intraday on 5 November.
- Mexican inflationNegative1–6 months
With headline inflation up at 3.62% in the first half of October, the cut increases the risks that push the return to the 3% target out to the end of 2027.
- Emerging market rate cycleUncertain1–6 months
While Europe's smaller central banks hike on energy and currency grounds, Mexico's cut shows the same shock being read differently in importing and producing economies.
Possibilities, ranked
- 1Extended hold65%
Banxico sticks to its guidance and the rate stays at 6.25%.
Watch: The dissenters' reasoning in the 19 November minutes
- 2Reversal under currency pressure20%
If the dollar holds above 19 pesos, the bank tightens again in 2027.
Watch: USD/MXN and inflation for the first half of November
- 3Another cut15%
If growth weakens and core inflation eases, another cut comes in the first quarter of 2027.
Watch: Final third-quarter GDP and core inflation
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Policy rate▼ 6.25%
- USD/MXN close▼ 18.75
- Q4 inflation forecast▼ 3.7%