Mexico central bank holds rate at 6.5%, delays inflation target return

Mexico's central bank, Banxico, held its benchmark interest rate at 6.50% and pushed back its inflation target timeline, citing stubborn price pressures and potential trade disruptions.

Mexico's central ​bank held its benchmark interest rate at ‌6.50% ​on Thursday, extending a pause that began in June and pushing back the timeline for inflation to return to target, underscoring the challenge ‌of taming price pressures in Latin America's second-largest economy. Banxico's five-member governing board voted unanimously to keep the rate unchanged, in line with market expectations, and said it would likely maintain the current setting for now.

"Both headline ‌and core inflation are still expected to decline throughout the forecast horizon, albeit more gradually than ‌previously anticipated," the bank said in its policy statement. Banxico left its end-2026 forecasts for both headline and core inflation unchanged at 3.5%, but said headline inflation would now converge to its 3% target only in the fourth quarter of 2027, later ⁠than ​the second quarter of ⁠2027 projected previously.

The central bank pointed to stubborn underlying price pressures, possible trade disruptions, global conflicts, climate-related shocks, rising business costs ⁠and the chance of a weaker peso as risks to higher inflation. It also said changes in U.S. policy ​and worsening international tensions were making the outlook harder to predict. The statement was slightly more ⁠hawkish in tone than the bank's June message, but analysts said it still suggested no rate move was coming soon. Goldman ⁠Sachs ​said the bank appeared likely to keep borrowing costs unchanged for the rest of 2026.

Banxico also said the economy was likely to remain weak, with spare capacity lingering and clear risks ⁠that growth could disappoint. Mexico's economy rebounded in the second quarter after contracting in the prior three-month period. ⁠Preliminary data released last week ⁠by statistics agency INEGI showed gross domestic product grew 1.5% in the second quarter from the previous quarter, after a 0.6% contraction in the first ‌quarter.