Mexico’s central bank held its benchmark interest rate at 6.5% on Thursday, maintaining a cautious stance as inflation pressures persist despite recent declines. The unanimous decision by the Bank of Mexico (Banxico) follows a monetary policy meeting in early August, with officials signaling that further rate holds are likely in the coming months.
Headline inflation slowed to 3.10% in the first half of July, down from prior levels, while core inflation—excluding volatile food and energy prices—fell to 3.95%. However, services inflation, which includes sectors such as restaurants, hotels, and air travel, has remained stubbornly above 4% since late 2021, complicating Banxico’s efforts to align price growth with its 3% target. The central bank now projects headline inflation will converge with the target by the fourth quarter of 2027.
Mexico’s economy expanded by 1.5% in the second quarter, rebounding after three consecutive quarters of contraction, though Banxico noted risks to growth. The Mexican peso has strengthened nearly 6% against the dollar this year, supported by robust demand for technology goods in exports, which have surged from under 5% of total exports in 2024 to nearly 25% currently. The shift reflects increased participation in AI and tech supply chains.
Banxico’s policy path contrasts with the U.S. Federal Reserve’s target range of 3.50%–3.75% for its federal funds rate, as set in July. Market pricing suggests the Fed may ease policy later in 2026, though Banxico’s minutes did not indicate a direct link between the two central banks’ decisions.
