On November 5, Banco de México cut its benchmark rate by 25 basis points to 6.25%, its lowest level since February 2022, in a split vote by its Governing Board. Only six of the 36 analysts in the Citi Expectations Survey anticipated the move, according to Bloomberg Línea.

The Board justified the reduction by noting that the disinflationary process has continued and that, given the economy's slack conditions, the pass-through of exchange-rate movements to prices is limited. The data point that reshuffles the board for Mexico sits in the currency market: after the announcement, the peso closed the session with a depreciation and the interest-rate differential with the Federal Reserve marked a new all-time low of 225 basis points, with the U.S. rate in a range of 3.75% to 4%, according to El CEO. The lower threshold reduces the appeal of the Mexican currency for carry trade operations and pressures the exchange rate heading into year-end.

"I consider it was appropriate, and I even consider there could be room for an additional cut," said Aranxa Sánchez, chief economist at Bankaool, in remarks reported by Bloomberg Línea. Gabriel Casillas, chief Latin America economist at Barclays, described the decision as a "bold move" that, he said, "could prove to be a good call" given a peso that is expensive against the dollar. Marco Oviedo, senior strategist at XP Investments, noted that inflation's convergence to 3% is not assured. In its forward guidance, Banxico indicated it will hold the rate at 6.25% "for an extended period," while Finamex expects that same level during the first half of 2027, and Sánchez noted that the guidance provides certainty that there will be no additional cut at the December 17 decision. Market participants anticipate an exchange rate of 18.50 pesos per dollar in December, up from a prior reading of 18.20, and Citi's most recent survey gathers forecasts around 19.00 units.

The calendar turns attention to December: Banxico's monetary policy decision on the 17th and the Federal Reserve meeting. Javier Guzmán Calafell, former deputy governor of Banxico, noted that a Fed hike is expected in December, a move that generates pressure on the exchange rate and, through that channel, an effect on inflation.

This article was written with the assistance of artificial intelligence from verified sources and reviewed by a human editor before publication.