A decline in inflation prompts Mexico’s central bank to cut its key interest rate
Official data showing a decline in inflation in April was published on Thursday morning and just hours later the Bank of Mexico (Banxico) board voted in favor of cutting the central bank’s key interest rate by 25 basis points.
The national statistics agency INEGI reported that Mexico’s annual headline inflation rate was 4.45% in April, down from 4.59% across March. The decline in April came after the headline rate increased in each of the first three months of 2026.
INEGI also reported that month-over-month inflation was 0.20% in April, while the annual core rate — which excludes volatile food and energy prices — was 4.26%, down from 4.45% across March.
Later on Thursday, a divided Bank of Mexico governing board voted in favor (3-2) of lowering the central bank’s benchmark interest rate from 6.75% to 6.50%. The 25-basis-point reduction is the bank’s second interest rate cut this year after the key rate was lowered from 7% to 6.75% in March. The Banxico board has demonstrated on various occasions that it is willing to cut the bank’s key interest rate even when inflation is well above the 3% target.
Fruit and vegetable prices increase more than 20%
INEGI’s data shows that fresh food prices increased 7.98% in April compared to the same month last year. The annual spike was the product of a 21.43% increase in fruit and vegetable prices and a 1.05% reduction in the cost of meat.
The annual inflation rates in April for the other categories monitored by INEGI were as follows:
- Packaged food, beverages and tobacco: 5.35%
- Services: 4.52%
- Non-food goods: 2.82%
- Energy (including electricity and gasoline): 2.8%
On a month-over-month basis, the price of poblano chiles increased 41.42% in April while tomatoes and high-octane gasoline were 19.25% and 6.16% more expensive, respectively.
In contrast, green tomatoes were 34.8% cheaper in April than in March, while electricity prices fell 14% as lower summer rates commenced in various cities including Mérida, Monterrey and Acapulco.
Banxico interest rate looks set to stay at 6.75% through 2026
In a statement on Thursday, the Bank of Mexico acknowledged that inflation decreased in April “due to a decline in its core component.”
The central bank said that “the balance of risks for the trajectory of inflation within the forecast horizon remains biased to the upside,” but noted that its governing board nevertheless deemed it “appropriate to make an additional reference rate cut and thereby conclude the [monetary policy easing] cycle that began in March 2024.”
“… Looking ahead, the Governing Board estimates that it will be appropriate to maintain the reference rate at its current level. It judges that the monetary policy stance is well-suited to face the challenges posed by the macroeconomic environment, including those associated with an extension and escalation of the Middle Eastern conflict and its repercussions,” Banxico said.
The bank forecasts that the average annual inflation rate in the second quarter of 2026 will be 4.1%. It anticipates that inflation will decline to 3.8% in the third quarter, 3.5% in the fourth quarter, and 3.2% in the first quarter of 2027. Banxico sees inflation converging to its 3% target in the second quarter of 2027 and remaining at that level through next year and the first quarter of 2028.
The central bank said that its forecasts are subject to “various risks.”
On the upside those risks are:
- Disruptions due to foreign trade policies or to an inflationary impact from geopolitical conflicts.
- Persistence of core inflation.
- Cost-related pressures.
- A trend towards depreciation of the Mexican peso.
- Climate-related impact.
The downside risks identified by Banxico are:
- Lower-than-anticipated economic activity in Mexico and/or the United States.
- Lower pass-through from increased costs.
- Lower pressures stemming from the appreciation that the Mexican peso has been registering since last year.
With reports from El Economista and El Financiero
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