Banxico Surprises With a 3-2 Rate Cut to 6.25%, Then Signals a Long Pause as Inflation Forecast Rises

Mexico’s central bank cut its benchmark interest rate by a quarter point to 6.25% on Thursday, Nov. 5, 2026, a move most of the market had not expected, and in the same statement said it plans to hold the rate there “for an extended period.” The Banxico rate cut took effect Nov. 6 and passed on a 3-2 vote of the Governing Board, with two deputy governors preferring to stay at 6.50%.

The board called the move a “one-time adjustment.” Governor Victoria Rodríguez and deputy governors Gabriel Cuadra and Omar Mejía voted to cut; Galia Borja and Jonathan Heath voted to hold, the statement shows. Market participants had expected no change, Reuters and FXStreet reported.

Why Banxico cut while raising its inflation forecast

The board’s case was that the disinflation process continues and the economy has slack. It said that under those conditions, exchange-rate swings would pass through only partly to consumer prices, that “no demand-side pressures are currently perceived in the Mexican economy,” and that the level of restriction already in place “continues operating.”

The data in the same statement point the other way in the short run. Headline inflation rose from 3.42% in the first half of September to 3.62% in the first half of October, driven by non-core prices, while core inflation slipped only from 3.79% to 3.78%. The peso depreciated since the previous decision, the bank said, and it judged the balance of risks for inflation “biased to the upside,” citing persistent core inflation, a weaker peso, trade policy disruptions and geopolitical conflicts, including the Middle East.

BBVA Research said Banxico’s “confidence in the ongoing disinflation process appears stronger than recent inflation data and its own updated forecasts would suggest,” and that given uncertainty about the neutral rate, “it is difficult to establish why 6.25% is materially more appropriate than 6.50%.” The bank’s economists said risks now point toward further peso weakness.

What the forecasts show

Banxico raised its fourth-quarter 2026 headline inflation forecast to 3.7% from 3.5% in its Sept. 24 projection, and core to 3.7% from 3.6%. Every other quarter in the table was left unchanged, and the bank still sees inflation reaching its 3% target in the fourth quarter of 2027. By The Boston Report’s reading of the table, the projected path stays above 3% for four more quarters, from 3.7% in the last quarter of 2026 through 3.2% in the third quarter of 2027, before converging.

In real terms, the cut narrows the policy cushion. With the overnight rate at 6.25% and headline inflation at 3.62%, the gap is about 2.6 percentage points, down from roughly 2.9 points at 6.50%, by our calculation from Banxico’s figures. That is still restrictive by the board’s own description, which is why it framed the cut as a single step rather than the start of a new easing cycle.

Markets and the U.S. backdrop

The peso recovered on Friday after losing ground in the session following the decision, gaining 0.65% to 18.6194 per dollar in the afternoon, Reuters reported, even as the dollar rallied on a stronger-than-expected U.S. jobs report. That report showed 165,000 jobs added in October and pushed traders’ odds of a Federal Reserve rate increase in December to about 85%, according to Reuters, a sharp contrast with Banxico’s move. Banxico’s statement noted that the Fed held rates at its October meeting and that U.S. long-term yields reached multi-decade highs during the period.

The rest of the region was mixed on Friday. Brazil’s real fell 0.44% to 5.5115 per dollar while the Bovespa index rose about 1.3%, and Mexico’s S&P/BMV IPC stock index slipped 0.22% to 71,242 points in the afternoon, Reuters reported. U.S. unemployment fell to 4.1% from 4.2% in September, the same report said, adding to the pressure on emerging-market currencies from a firmer dollar, which posted its biggest one-day percentage gain since June 17.

The decision lands as Mexico’s government manages relations with both Washington and Beijing; President Claudia Sheinbaum met Chinese leader Xi Jinping at APEC in Shenzhen this week. For more on rates and markets, see our business and finance news.

What comes next

Banxico said future decisions will weigh observed and expected inflation, exchange-rate pass-through, slack and inflation expectations. Minutes of the meeting, which Banxico normally publishes two weeks after a decision, may explain what the majority expected to gain from a quarter-point move that the minority and some outside economists questioned.

Sources

• Banco de México: Monetary policy statement (Nov. 5, 2026)
• BBVA Research: Mexico | Banxico delivers surprise cut, signals prolonged pause (Nov. 6, 2026)
• FXStreet: Banxico unexpectedly cuts rates by 25 basis points to 6.25% (Nov. 5, 2026)
• Reuters via Devdiscourse: Mexico central bank surprises with 'one-time' rate cut (Nov. 5, 2026)
• Reuters via MarketScreener: Latin American currencies mixed after strong U.S. jobs data (Nov. 6, 2026, Spanish)