Banxico Implements Further Rate Cut to 7%
The Bank of Mexico (Banxico) announced on December 18, 2025, a reduction in its benchmark interest rate by 25 basis points, bringing it to 7.00%, effective the following day. This move represents the central bank's twelfth consecutive rate cut in an easing cycle that commenced in August 2024, and the eighth such easing in 2025.
The decision was reached by a 4-1 majority vote within Banxico's Governing Board. Governor Victoria Rodríguez, alongside three other members, supported the reduction from the previous rate of 7.25%. Deputy Governor Jonathan Heath cast the sole dissenting vote, advocating for the rate to remain unchanged.
Banxico cited several factors influencing its decision, including an assessment of the current inflationary outlook, the persistent weakness in economic activity—with Mexico's GDP shrinking by 0.2% in the third quarter of 2025—and the potential impact of global trade policy changes. The central bank anticipates that headline inflation will converge to its 3% target by the third quarter of 2026, despite a recent increase in headline inflation to 3.80% and core inflation to 4.43% in November.
Bank of Japan Hikes Rates to Three-Decade High
Concurrently, the Bank of Japan (BoJ) raised its interest rate to a 30-year high of 0.75% on Friday, December 19, 2025. This increase of 25 basis points from the previous 0.5% was a unanimous decision by the BoJ Policy Board.
The BoJ's move was driven by signs of economic improvement, persistent inflation—with core inflation holding at 3% in November, above the bank's 2% target—and the ongoing weakness of the yen against the dollar. The central bank also noted expectations for continued wage hikes. Following the announcement, the Japanese yen experienced a slight weakening against the dollar, trading around 156.02 per dollar.
Mexican Peso's Mixed Reaction in Currency Markets
In the wake of these significant monetary policy announcements, the Mexican peso exhibited a mixed, though ultimately slightly depreciatory, reaction against the U.S. dollar. While some reports indicated the peso had strengthened in the broader context of the past month, reaching $18 per dollar and marking its highest level since July 2024, the immediate aftermath of the central bank decisions saw some shifts.
On December 19, 2025, the USD/MXN exchange rate rose to 18.0031, reflecting a 0.03% increase from the previous session, indicating a slight depreciation of the Mexican peso. This subtle movement suggests that while Banxico's rate cut was largely anticipated, the broader global monetary landscape, including the BoJ's rate hike, contributed to the peso's immediate performance.
Outlook for Monetary Policy and Currency Stability
Both central banks have indicated a data-dependent approach for future policy adjustments. Banxico's board will continue to evaluate the timing for additional reference rate adjustments, with an eye on inflation trajectory and economic activity. Similarly, the BoJ plans to continue raising its policy rate based on economic and price developments, aiming to achieve its inflation goal while maintaining accommodative financial conditions.
The interplay of these divergent monetary policies from major global economies continues to shape currency valuations and economic outlooks, with investors closely monitoring future statements and economic indicators from both Mexico and Japan. The Mexican peso's resilience over the past year, having strengthened by 10.33%, will be tested by ongoing global economic dynamics and domestic inflationary pressures.
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