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.
Banxico dropped forward guidance, signaling flexibility to cut sooner, which supports Mexican bond prices (yields down).
Banxico's removal of forward guidance opens the door to easing, weakening the peso versus the dollar.
