Banxico Holds Interest Rates Steady Amid Inflation Concerns

The Bank of Mexico's governing board unanimously kept its benchmark interest rate at 7.00% on Thursday, aligning with market expectations amid rising inflation and economic growth. The central bank now forecasts inflation reaching its 3% target in the second quarter of 2027, extending from the previous forecast of the current year's third quarter.

Banxico, which faced external and internal skepticism over previous optimistic inflation forecasts, revised its predictions on Thursday, indicating higher inflation expectations for 2026. The hold marked its first pause since June 2024, following 12 consecutive rate cuts after the rate peaked at 11.25%. The bank's December meeting hinted at this pause, citing uncertainties about the inflationary impact of new taxes set for January.

Capital Economics' Liam Peach noted that while Banxico's tone remains hawkish, the pause doesn't indicate the end of rate easing but suggests a stop-start approach dependent on inflation improvements. Analysts remain optimistic, given Mexico's rebounding economy and forecast the rate remaining steady through much of 2026.