Mexico central bank holds rate at 6.5%, delays inflation target return

Mexico's central bank, Banxico, maintained its key interest rate at 6.50% on Thursday, maintaining the pause introduced in June and postponing the timeline for inflation to reach its target. The five-member governing board voted unanimously to keep the rate unchanged, aligning with market expectations and signaling no immediate rate adjustment is planned at this time.

Both headline and core inflation are projected to decline throughout the forecast period, albeit at a slower pace than initially anticipated, according to Banxico. The bank left its end-2026 projections for both headline and core inflation at 3.5%, but revised its forecast, stating that headline inflation would only converge to its 3% target in the fourth quarter of 2027, later than the previously projected second quarter of 2027.

Banxico cited persistent underlying price pressures, potential trade disruptions, global conflicts, climate-related shocks, rising business costs, and the possibility of a weaker peso as risks contributing to elevated inflation. Additionally, the central bank acknowledged that shifting U.S. policies and escalating international tensions were making the outlook more difficult to predict.

While the bank's statement was slightly more assertive than its June communication, analysts suggested that it did not imply an immediate rate change. Goldman Sachs echoed this sentiment, stating that the bank is likely to maintain borrowing costs unchanged for the remainder of 2026. Banxico also indicated that the Mexican economy would likely remain subdued, with substantial capacity still available and significant risks of growth underperformance.

Mexico's economy rebounded in the second quarter, growing 1.5% from the previous quarter after contracting in the three months prior. However, preliminary data released by the statistics agency INEGI showed that economic growth may not be as robust as initially thought, with clear risks of disappointing growth figures.