Banxico slashes 2026 GDP forecast, sees inflation rising
The Bank of Mexico (Banxico) released its Q1 2026 report on Wednesday, revising down 2026 GDP growth from 1.6% to 1.1%. The Mexican institution blamed a “considerably weaker” first-quarter performance, warning that investment could remain weak at least until the second half of 2026.
Banxico revised up GDP growth for 2027 from 2% to 2.1% and maintained its headline inflation projection for Q4 at 3.5%. Core inflation for the same period is projected at 3.4%, unchanged.
The Mexican central bank expects inflation to converge towards its 3% goal in the second quarter of 2027, yet noted that the risks of inflation remain tilted to the upside. Regarding monetary policy, officials noted that “it will be appropriate to maintain the interest rate at its current level.
Market’s reaction
The USD/MXN pair is trading up 0.27% as the Greenback erases some of its earlier losses. The exotic pair seems to have bottomed around 17.00, and at the time of writing, it is clearing the 20-day SMA as buyers set their sights on 17.50. Above this area lies the 200-day SMA at 17.90, ahead of the psychological 18.00 figure.
Banxico FAQs
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%.
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.
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.
