🏦🇲🇽Cable FX Macro Weekly Note: Banxico Rate Decision

**AS SEEN IN RISK IN THE WEEK REPORT 09/21/25, GET FULL ACCESS NOW!

The governing board voted unanimously to cut the target for the overnight interbank interest rate by 25 basis points to 7.75%, effective August 16, 2025. This marks the latest step in Banxico's ongoing easing cycle, which began in March 2024 after holding rates at a peak of 11.00% for over a year to combat post-pandemic inflation.Headline inflation has moderated to 3.8% annually in July 2025 (within the 2–4% target range), with core inflation at 3.7%, supported by easing food and energy prices. Economic activity remains subdued, with Q2 2025 GDP growth at 0.2% quarter-on- quarter, amid weak domestic demand and external risks like U.S. trade policy uncertainties under the new administration. The board emphasized a data-dependent approach, noting the peso's relative stability (USD/MXN around 19.50) and global factors, including potential tariff hikes affecting exports.

For September, markets are pricing in a 70–80% probability of another 25 basis point cut to 7.50%, contingent on August inflation data (due September 9, showing early signs of further cooling). The new rate would take effect October 1, 2025. The team at BofA now expects Banxico to keep cutting at a pace of 25 bps per meeting, reaching a terminal rate of 6% by June 2026, this is a revision to their prior forecast where they thought the central bank would not lower rates below 8% this year. BofA said that some concerns around inflation prevail, but the recent dovish Fed pivot, a strong currency, a relatively weak economy, and prospects for a steady, yet gradual, fiscal consolidation, may allow Banxico to cut rates significantly below the 7.00% that is currently priced by the market.