Bank of Mexico cuts benchmark interest rate to 6.75% in split vote

By Natalia Siniawski, Emily Green and Brendan O'Boyle

MEXICO CITY, March 26 (Reuters) - The Bank of Mexico on Thursday cut its benchmark interest rate by 25 basis points to 6.75% in a sharply divided vote that was one of the most closely watched and uncertain decisions in recent years.

The 3-2 decision by the central bank's five-member board highlights a growing divide among the bank's policymakers, with a slim majority supporting further rate cuts that could stimulate the economy, despite fears about rising inflation.

Governor Victoria Rodriguez and deputy governors Omar Mejia and Gabriel Cuadra voted to cut the rate by 25 basis points. Deputy governors Jonathan Heath and Galia Borja voted to maintain the rate.

"Banxico deemed that the monetary policy stance attained is adequate to face the challenges posed by an extension and escalation of the Middle Eastern conflict," the central bank said in a statement.

The U.S.-Israel war with Iran has further complicated the global outlook, as the conflict has fueled soaring gas prices that have compounded inflationary concerns.

Analysts polled by Reuters ahead of the decision were uncharacteristically divided on whether the bank would hold rates in response to rising inflation or cut rates amid weak economic growth.

Economic data released this week underscores the dual concerns facing Banxico.

Mexico's economic activity fell 0.3% in January, according to the data, which would support the argument for rate cuts that could fuel economic growth.

But annual headline inflation accelerated to 4.63% in early March, its highest level since 2024 and well above the bank's 2% to 4% tolerance range, fueling the case for a rate pause to curb price pressures.

While inflation has trended upward since mid-2025, a majority of the Banxico members, as the central bank is known, has prioritized addressing weak economic growth. The bank had pushed through 12 consecutive rate cuts before implementing a pause last month.

Banxico's decision on Thursday puts it somewhat at odds with recent moves by central banks in major developed markets.

Last week, the central banks of the U.S., Japan, Britain, Canada and the euro zone all left rates unchanged and signaled vigilance over the risk that higher energy prices could fuel broader inflation. (Reporting by Natalia Siniawski, Brendan O'Boyle and Emily Green Editing by Nick Zieminski)