Mexico’s central bank has cut its benchmark interest rate by 50 basis points to 9%, signalling further reductions are likely as inflation slows and trade tensions with the United States threaten to drag the country into recession.
The Bank of Mexico (Banxico) announced the unanimous decision on Thursday, marking the second consecutive half-point cut and accelerating a monetary easing cycle that began with smaller moves. The board said similar-sized reductions could follow in coming months, with inflation now expected to reach its 3% target in 2026.
Headline inflation dropped to 3.67% in mid-March, its lowest level since early 2021. Core inflation, which strips out volatile items, fell to 3.56%—below its pre-pandemic average.
“The overall inflation assessment was constructive, and no changes were made to Banxico’s inflation forecast, not even in the short term,” said BNP Paribas economist Pamela Diaz Loubet, who described the decision as a “clear commitment” to further easing.
Economists widely anticipated the move, with 29 of 30 polled by Bloomberg predicting a half-point cut. Natixis economist Benito Berber said Banxico appeared less concerned about inflation and forecast the policy rate could fall to 7.75% by year-end.
Trade tensions add to pressure
The rate cut comes amid increasing economic uncertainty, fuelled by US President Donald Trump’s new 25% tariff on all non-US-made cars. The measure, effective 3 April, directly targets Mexico’s auto industry—its largest export sector to the US.
The latest tariffs follow previous duties on Mexican steel and aluminium, and have raised fears that broader USMCA trade exemptions could be undermined. Trump has left open the possibility of additional levies, prompting Mexican President Claudia Sheinbaum to pledge a formal response by 3 April.
“The changes in economic policy by the new US administration have added uncertainty to the forecasts,” Banxico wrote in its policy statement, noting the risk of both upward and downward inflationary pressures.
Mexico’s GDP shrank 0.2% in January, and JPMorgan this week declared a recession “unavoidable.”
Growth outlook deteriorates
The Organisation for Economic Co-operation and Development (OECD) recently downgraded its GDP forecast for Mexico, predicting a contraction of 1.3% in 2025—down from December’s forecast of 1.2% growth. A further decline of 0.6% is expected in 2026.
“The majority of the members of the board say that pressures from aggregate demand have dissipated and should allow inflation to continue to slow, and that should compensate for the external risks,” said Joan Enric Domene Camacho of Oxford Economics.
Banxico estimates that economic weakness will persist into the first quarter of 2025. If confirmed, this would mark a technical recession following a contraction in the final quarter of 2024.
Despite the deteriorating growth outlook, Banxico reaffirmed its commitment to restoring inflation to its 3% target over the medium term. While interest rates are likely to continue falling, the board signalled that monetary policy would remain restrictive for now, balancing easing against risks posed by trade disruptions and global instability.
The Mexican peso was little changed after the decision, trading about 1% weaker following Trump’s tariff announcement.
