Banxico Holds Interest Rates

Mexico's central bank left its benchmark interest rate unchanged at 6.50% at its August meeting, in line with market expectations. Policymakers said the decision reflects an appropriate degree of monetary restraint as inflation continues to ease while risks remain tilted to the upside. Annual inflation slowed to 3.10% in the first half of July from 3.55% in mid-June, while core inflation eased to 3.95%. The central bank noted that inflation is expected to continue declining gradually, with headline inflation projected to converge to the 3% target in the fourth quarter of 2027. Banxico also highlighted that Mexico's economy rebounded in the second quarter after contracting in the previous quarter, although downside risks to growth persist. The board reiterated that it expects to keep the benchmark rate at its current level, citing uncertainty related to geopolitical conflicts, global trade policies, and their potential impact on inflation.

Banxico kept its benchmark interest rate unchanged at 6.50% during its June 2026 meeting, in line with expectations. It was noted that the economy is expected to rebound in the second quarter, although significant downside risks to activity remain. Inflation continued to ease between April and mid-June, with headline inflation down from 4.45% to 3.55%, while core inflation eased from 4.26% to 4.12%. Banxico revised down its headline inflation forecasts for the second quarter due to softer non-core prices, while slightly raising its core inflation outlook through the end of 2026. Banxico maintained its projection for headline inflation to converge to the 3% target in the second quarter of 2027. Policymakers said the balance of risks remains tilted to the upside, citing trade disruptions, geopolitical tensions, persistent core inflation, climate-related shocks, and possible peso depreciation. Banxico signaled that it will likely be keeping the policy rate at its current level.

The Bank of Mexico lowered its benchmark interest rate by 25 basis points to 6.50% at its May 7, 2026 meeting, as expected, bringing it to its lowest level since April 2022 and likely marking the end of the easing cycle that began in March 2024. The decision was split, with three board members backing the cut while two favored holding rates unchanged. Banxico cited a contraction in Mexico’s economy during Q1 2026, saying weaker activity has created greater economic slack and reduced demand-driven inflation pressures. Inflation eased between mid-March and April, with headline inflation slowing from 4.63% to 4.45% and core inflation falling from 4.46% to 4.26%. Despite upward revisions to short-term inflation forecasts due to higher non-core prices, the central bank still expects inflation to converge to its 3% target in Q2 2027. Banxico said maintaining the policy rate at the current level will likely be appropriate going forward amid ongoing geopolitical and trade-related uncertainty.