Mexico - July 2026

Mexico’s central bank (Banxico) has signalled that a prolonged pause in interest rate movements lies ahead after leaving rates on hold at 6.50% at its 25 June meeting, as forecast by markets. This appears to put a firm end to a two-year easing cycle, which has been interspersed with pauses, amid concerns over mixed inflation trends and a cooling economy.

After cutting rates by 25 basis points at its previous meeting in May, Banxico argued that it was appropriate to “conclude the cycle” that began in March 2024 when interest rates stood at a high of 11.25% – with rates having stayed put for a full year previously to combat inflation triggered by the pandemic – leaving no room for surprise when the board voted unanimously to hold rates at their lowest level since 2022.

The fall in headline inflation to 3.55% year-on-year in the first half of June placed it squarely within Banxico’s tolerance band of 2-4%, while the central bank underlined that “significant downside risks to economic activity persist”. “It will be appropriate to maintain the reference rate at its current level,” Banxico said in a statement, as it shifts into wait-and-see mode, with only minor changes to Banxico’s headline and core inflation forecasts through 2027.

“There is no predefined duration,” the Banxico governor, Victoria Rodríguez Ceja, said of the pause in lowering interest rates in an interview with Bloomberg on 29 June. “This stance is appropriate for addressing the challenges of the macroeconomic environment and also allows us to assess the implications of recent inflation trends for our forecasts,” she added, as Banxico weighs the impact of factors including the conflict in the Middle East on global energy prices.

Despite the US Federal Reserve signalling that it is shifting towards a more hawkish monetary policy stance after intermittently lowering interest rates for over two years until December 2025, and continued underlying price pressures in Mexico, analysts expect Banxico to wait until the close of 2026 or possibly early 2027 before starting to raise rates again.

Analysts at London-based consultancy Capital Economics wrote in a note to clients: “We expect interest rates to remain on hold at 6.50% over the coming meetings. That said, we think the balance of risks will tilt towards renewed tightening towards the end of the year, reflecting persistent inflation pressures and the prospect of Fed rate hikes.”

Similarly, Alberto Ramos, an economist at Goldman Sachs, argued that there is “no room for near-term additional rate cuts”, while cautioning that headline inflation expectations remain significantly above the 3.0% target, as well as the central bank’s “very optimistic” forecasts of 3.5% for end-2026, and 3.0% for end-2027. Core inflation expectations are also well above the central bank’s forecasts, he added. 

Ramos explained in a note to clients: “A combination of still unanchored inflation expectations, lingering domestic and external risks and uncertainty, cost-push pressures (large double-digit minimum wage increase), tight Mexico-US interest rate differential, uncertain outlook for the [US] rate path, and the fact that the policy rate is already well in the neutral range requires a very cautious calibration of monetary policy.”