Banco de México unexpectedly cut its overnight rate by a quarter point this afternoon, but called the move a “one-time adjustment”, helping alleviate selling pressure on the peso. In a split decision, policymakers trimmed the overnight rate to 6.25%, with Governor Victoria Rodríguez, Gabriel Cuadra and Omar Mejía carrying the vote, while Galia Borja and Jonathan Heath argued for holding at 6.50%. The move has widened the gap with US rates, which climbed in September, and are expected to go higher next month.

The central bank acknowledged upside risks to headline inflation but emphasised the absence of “demand-side pressures” in the Mexican economy. In the statement accompanying the decision, officials noted that although headline inflation rose to 3.62% from 3.42% between mid-September and mid-October, there was no evidence of spillovers from energy into other categories, and core inflation barely budged at 3.78%. “Economic slack is still expected to persist throughout the forecast horizon,” they said, “along with downward risks to economic activity”.

The board was explicit that the move should be viewed as a one-off, designed to ease monetary restrictiveness rather than to launch another easing cycle. Officials said they intend to hold the rate at 6.25% for an “extended period” to “support the convergence of inflation to target”, while also helping to cushion the economy against external challenges. Future decisions, they said, will hinge on how exchange-rate pass-through, economic slack and inflation expectations evolve – language that, to us, raises the bar to further cuts, and should therefore provide support across the front end of swap curves.

The peso is trading modestly weaker in the wake of the decision and remains almost 1% down on the day after a rout in American equity markets crushed risk appetite. What began as an algorithm-driven drop in semiconductor stocks this morning has spread across US financial markets, pushing every sector of the S&P 500 into negative territory, shaving ten basis points off ten-year Treasury yields, and reversing yesterday’s oil-led moves in currency markets. Some market participants are pointing to fears of overzealous regulation under the incoming Democratic Congress, while others cite doubts about the Trump administration’s plans to wind down the war with Iran, but neither narrative is especially convincing. What is clear is that, as ever, the peso’s fortunes are being decided north of the Rio Grande.