Citi Mexico Survey expects Banxico hold, USD/MXN ending 2026 at 17.90

Citi Mexico's Expectations Survey, conducted among 35 economists, suggests that Banxico will likely maintain its monetary policy at 6.50% in the near future. Seven economists anticipate a rate hike, while six expect a rate cut in the future. The rest believe that policy will remain unchanged. Looking ahead, the USD/MXN exchange rate is projected to end at 17.90 in 2026, remaining stable.

For 2027, the consensus suggests a slight depreciation of the Mexican Peso (MXN), with the exchange rate expected around 18.50 and trading within a range of 17.40-19.95. Inflation expectations for July show a Consumer Price Index (CPI) of 3.13% YoY, a decrease from 3.37% in the previous survey, and a core CPI of 3.94% YoY, lower than the previous 4.03%.

In the medium term, CPI is expected to end at 4.02% YoY, a slight decline from 4.09%, while Core CPI will drop from 4.10% to 4%. The Mexican economy is forecasted to expand by 1.2% in 2026, up from 1.1% in the last survey, and GDP is projected to be at 1.8% for 2027, unchanged from the previous survey. The Mexican Peso (MXN) is primarily influenced by the performance of the Mexican economy, the country's central bank's policies, foreign investment levels, remittances from Mexicans living abroad, geopolitical trends, and oil prices.

Banxico's primary goal is to keep inflation at low and stable levels, ideally at or near its target of 3% (within a tolerance band of 2-4%). The bank adjusts interest rates accordingly, raising them to curb inflation and lower them to stimulate the economy. Strong macroeconomic data, such as high growth, low unemployment, and increased confidence, positively impacts the Mexican Peso (MXN), attracting foreign investment and potentially leading to higher interest rates set by Banxico.

Conversely, poor economic data may weaken the MXN. As an emerging-market currency, the Mexican Peso (MXN) generally performs well during risk-on periods, but tends to depreciate during market turbulence or economic uncertainty.