Mexico - March 2026

Concerns about higher inflation prompted the governing board of Mexico’s central bank, Banco de México (Banxico), to slam the brakes on a cycle of consecutive interest rate cuts that started one-and-a-half years ago, deciding unanimously to keep its benchmark rate unchanged at 7% at its meeting on 5 February.

With core inflation firmly above the upper limit of the Mexican central bank 2%-4% tolerance range, officials said that both rising inflation and persistent trade tensions explained the pause in the monetary easing cycle, which began in earnest in August 2024 when interest rates stood at 11%. Banxico had most recently implemented a 25-basis point cut in December.

Banxico noted that forecasts for headline and core inflation had been raised for this year and next, explaining that this “is mainly the result of a higher-than-anticipated trajectory for core inflation”. It warned that the two inflation rates are now expected to take significantly longer to converge to the bank’s 3% target (plus or minus 1 percentage point). This is now not expected until the second quarter of 2027, rather than the third quarter of 2026 as forecast in December.

While annual inflation accelerated to 3.77% in the first two weeks of January, up from 3.66% in late December, annual core inflation, which excludes volatile food and fuel prices, rose to 4.47% from 4.31% over the same period, outside the tolerance band.

“[Banxico’s] communications suggested that this [decision] marked a pause, not the end of the easing cycle. But the overall tone was hawkish, adding upside risks to our view for 75 basis points of cuts this year” to 6.25% by year-end, according to analysts at Capital Economics, a London-based consultancy. The decision, which was widely expected by the market, “doesn’t close the door on the easing cycle, but it will be stop-start, and the timing of the next move may depend on an improvement in the inflation outlook”, the analysts added in a note to clients.

Although the rise in core inflation was partly attributed to the impact of higher tariffs on imports from China, as well as other countries without a free trade agreement with Mexico, analysts argued the increase in excise taxes on soft drinks and tobacco could have been a more important factor, pushing up annual core food inflation from 0.6% in December to 1.6% in January. Banxico said that it will consider the inflationary impact of the recently implemented tariffs when deciding on further rate moves, but it expects the levies to have only a limited effect on prices.

Mexico’s weak domestic economy and a stronger currency mean that there is room for further interest rate cuts, while there are no significant price pressures in the short term, Banxico’s Deputy Governor Galia Borja told Bloomberg on 25 February. “The rate should remain high – in restrictive territory – when you face a demand shock or a change in expectations, which is not the case in Mexico,” said Borja, who has been a board member since 2021, signalling that the recent decision not to continue lowering rates is likely to be only temporary.

But more recent global developments are also likely to affect considerations, warned Alberto Ramos, an economist at US investment bank Goldman Sachs. “The recent oil price shock and [Mexican peso] depreciation is a new headwind on the inflation front, which depending on the duration and intensity of the shock may prompt the central bank to adopt a more near-term conservative stance,” he said.