Bank of Mexico holds key interest rate, sees inflation higher for longer

Banxico's five-member board now sees headline inflation reaching its target in the fourth quarter of 2025, versus a prior forecast for the second quarter of 2025. The board "stated that challenges and risks prevail, which requires monetary policy to continue being managed prudently," the statement said.

The Bank of Mexico, as expected, held its benchmark interest rates steady at 11.00% on Thursday, in a unanimous decision by its governing board, as persistent inflation in Latin America's second-largest economy remains above the bank's target range. With the decision, interest rates in Mexico remain among the highest in the region.

Banxico, as the Mexican central bank is known, also upwardly revised its forecasts for headline and core inflation for the following six quarters, "considering that inflationary shocks are foreseen to take longer to dissipate." Mexico's peso currency strengthened 0.5% against the dollar following the rate decision announcement.

Earlier on Thursday, new data from Mexico's statistics agency showed that annual headline inflation sped up slightly more than expected in April, reaching 4.65%, above the central bank's target range of 3%, plus or minus one percentage point. Banxico's five-member board now sees headline inflation reaching its target in the fourth quarter of 2025, versus a prior forecast for the second quarter of 2025.

The board "stated that challenges and risks prevail, which requires monetary policy to continue being managed prudently," the statement said. All of the analysts polled by Reuters had predicted the board would hold the rate after its much-anticipated 25 basis-point rate cut in late March brought the rate down from a record high of 11.25%.

"While we expect interest rate cuts to resume soon, we think that monetary conditions will be kept tighter than most expect over the course of this year and next," Capital Economics' deputy chief emerging markets economist, Jason Tuvey, said, predicting the next rate cut at Banxico's meeting in June. Banxico has taken a more hawkish approach to monetary easing than some of its Latin American neighbors, and some board members have expressed caution in recent weeks about future rate cuts as inflation remains stubborn.

On Wednesday, regional powerhouse Brazil cut interest rates by 25 basis points to 10.50%, delivering a smaller reduction after six straight cuts of twice that size, despite dissent from all four directors appointed by President Luiz Inacio Lula da Silva. Peru's central bank is expected later on Thursday to continue a rate-cutting cycle that kicked off last September.

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