Mexico Government Bond 10Y

Mexico's central bank, Banxico, announced it was holding its policy rate at 6.50% at its meeting on Thursday, September 24, in line with market expectations, but removed from its statement the forward guidance that had said the rate would be held at that level, a signal that it is opening the door to greater flexibility in adjusting monetary policy ahead. Banxico's five-member governing board voted unanimously to keep the policy rate at 6.50%, dropping the wording that said it was appropriate to keep the reference rate at its current level, which had appeared in the three previous statements. The statement said monetary policy decisions will depend on economic data, assessing the development of the inflation slowdown as well as the pass-through of the exchange rate to consumer prices, an economy that has not yet recovered its full potential, and inflation expectations in the system. It kept its forecast that headline inflation will gradually decline toward the 3.0% target in the fourth quarter of 2027, and said inflation risks remain tilted to the upside, while downside risks to economic activity persist amid uncertainty over U.S. economic policy and prolonged geopolitical conflicts. Although the Fed voted to raise its policy rate by another 0.25% at its September meeting, Banxico reiterated that Mexico's monetary policy does not need to move automatically in step with the Fed, because the macroeconomic conditions of the two countries differ.

Mexico's central bank deputy governor, Heath, indicated that the bank should not cut rates again in the short term, and that additional easing could come about a year later. This highlights policymakers' cautious stance even as inflation approaches its target. In an interview released on Banorte's podcast, Heath said, "I think it's appropriate to pause under current circumstances." He added that if inflation, supported by core inflation, gets very close to the bank's 3% target, there would then be room to consider lowering rates a bit more, and that could be about a year from now. He warned that the decline in headline inflation is mainly due to volatile non-core items that are less responsive to monetary policy, and it is too early to declare victory. He also suggested that if inflation reignites, progress stalls, or the external environment, including the Federal Reserve's actions, complicates the outlook, the bank could be forced to reassess its stance.

Rabobank analysts Molly Schwartz and Christian Lawrence note that Mexico's central bank, Banxico, unanimously kept the overnight policy rate at 6.50% on August 6 and continues to judge the stance as appropriate, supporting the Mexican peso carry trade.

The Bank of Mexico decided unanimously at its monetary policy meeting on the 6th to hold the policy rate at 6.50 percent. This marks the second consecutive hold, in line with market expectations. In its statement, the central bank pushed back the expected timing for inflation to converge to the 3 percent target to the fourth quarter of 2027, from its previous forecast of the second quarter of the same year. It noted that risks to the inflation outlook are tilted to the upside, amid persistently high core inflation, trade policy disruptions, and peso depreciation risks. An economist at Capital Economics said the statement was slightly more hawkish than the previous one, and that a rate hike by year-end is possible.