Bank of Mexico cuts interest rate to 10.75% and raises year-end inflation forecast.

The Governing Board of the Bank of Mexico (Banxico) decided on Thursday to lower the target for the interbank interest rate by 25 basis points to 10.75 percent.

The decision was made by a majority vote of 3 to 2, with dissenting votes from Deputy Governor Irene Espinosa and Deputy Governor Jonathan Heath.

In the statement accompanying the fifth monetary policy announcement of the year, the board argued that the downward trajectory of core inflation is expected to continue moderating. They emphasized that “the inflation outlook still warrants a restrictive stance, but the evolution it has shown suggests that reducing the degree of monetary tightening is appropriate.”

With this rate cut, Banxico resumed its rate reduction cycle, which had been paused in May. The cycle initially began during the March 21 meeting with a quarter-point cut, lowering the nominal rate from 11.25% to 11%.

This is the first time the rate has been set at 10.75% since Banxico adopted the rate as its operational target in 2008.

Despite their reasoning for the rate cut, Banxico raised its inflation forecast. They now expect an average inflation rate of 4.4% for the last quarter of this year, up from the 4% projected in June.

The outlook for core inflation remains unchanged from their previous forecast, with an expected annual variation of 3.9% by year-end.

Following the central bank’s announcement, the peso trimmed its gains. The Mexican currency was trading at 19.0108 per U.S. dollar, marking a 1.33% appreciation, but giving up some of the earlier gains when it had strengthened to as much as 18.9110 pesos per dollar.