Banxico expected to stay put as inflation risks block easing – Reuters

Christian Borjon Valencia FXStreet

A Reuters poll shows that all economists expect that the Mexican Central Bank (Banxico) will hold rates unchanged at 6.50% for the third straight meeting on Thursday.

Banxico is expected to say inflation risks are tilted to the upside, but the tone is projected to keep the central bank’s stance neutral.

On the economy, the statement is projected to indicate that growth risks are tilted to the downside, with the board acknowledging the Fed’s tightening cycle and its implications for the USD/MXN exchange rate.

Median forecasts indicate that Mexico's key rate is expected to stay unchanged until at least the second half of 2028.

Regarding the future of Mexico’s interest rates, 8 of the 13 poll respondents foresee another rate cut, while 5 see rates remaining steady.

Banxico FAQs

What is the Bank of Mexico?

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.

How does the Bank of Mexico’s monetary policy influence the Mexican Peso?

The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.

How often does the Bank of Mexico meet during the year?

Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.

Author

Christian Borjon Valencia

FXStreet

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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