Banxico Holds at 6.50% and Reinforces Its Message: Disinflation Is Moving Forward, but It Isn’t a Given

Banxico’s unanimous decision signals caution as inflation cools, even as persistent pressures and external risks could push prices back up.

The Bank of Mexico (Banxico) kept its policy rate unchanged at 6.50% in a unanimous decision, confirming its intention to hold a restrictive stance for longer after declaring the rate-cut cycle over. The move was in line with market expectations, at a time when headline inflation has shown a meaningful slowdown in June, but the central bank believes conditions are not yet in place to resume cuts in a consistent way.

In its assessment, the central bank noted that headline inflation fell from 4.45% in April to 3.55% in the first half of June, with declines in both core inflation—often viewed as the best gauge of the medium-term trend—and non-core inflation. Even so, Banxico underscored a key point for policy deliberations: longer-term inflation expectations remain above the permanent 3% target, limiting room to ease policy without risking the anchoring of prices.

The decision also reflects the most recent adjustment: on May 7, Banxico cut the policy rate by 25 basis points from 6.75% to 6.50% in a split vote, and indicated that move would mark the end of the cutting cycle that began in March 2024. Now, with a unanimous vote, the Board of Governors reinforces the message of continuity: keep rates at current levels while the downward trend—especially in core inflation—becomes more firmly established.

In its forecast path, Banxico made a marginal downward revision to its headline inflation projection for the second quarter of 2026 (from 4.1% to 4.0%) due to better performance in non-core inflation, but left the central trajectory largely unchanged and reiterated its expectation of convergence to 3% by the second quarter of 2027. That extended timeline suggests that, while the inflation shock has lost momentum, the process of returning to target on a sustained basis is expected to be gradual and marked by bouts of volatility.

The domestic backdrop adds complexity. Mexico’s economy has shown mixed signals: some components of internal demand have cooled, while services continue to show more persistent price pressures than goods. For Banxico, these kinds of rigidities matter because, during disinflation periods, services prices often adjust more slowly to monetary tightening—requiring careful calibration of any further easing.

The rate differential with the United States and the impact on the peso

Another factor in the calculation is the rate differential with the United States. While Banxico holds at 6.50%, the Federal Reserve is keeping its benchmark range at 3.50% to 3.75%, leaving a gap of roughly 275 to 300 basis points. That spread typically supports the relative appeal of peso-denominated assets and helps cushion bouts of FX volatility; however, it also means shifts in expectations about the Fed’s path can spill over quickly into local markets.

In practice, a wide differential tends to support the peso, but it doesn’t make it immune. Banxico warned that a potential currency depreciation could complicate disinflation, especially if paired with higher logistics or energy costs. In a global risk environment—geopolitical tensions, changes in trade policy, and episodes of risk-off sentiment—exchange-rate stability depends not only on the rate gap but also on portfolio flows, perceptions of country risk, and the market’s read on fiscal strength.

The central bank kept an upside-skewed balance of risks for inflation. Among the factors that could slow disinflation, it cited persistent core inflation, cost pressures, external shocks, and a scenario involving peso depreciation; on the helpful side, it noted that weaker economic activity in Mexico or the United States could help ease price pressures. For investors, the focus will be on whether core inflation confirms a sustained decline and on how the external backdrop evolves—particularly the trajectory of U.S. monetary policy.

Looking ahead, the most likely scenario is a “wait-and-see” phase: Banxico would aim to accumulate evidence that disinflation is durable before reopening the door to cuts. In the near term, the debate will center on the composition of inflation—how much services, rents, and other sticky categories cool—and on the economy’s ability to grow without reigniting broad-based pressures, in an environment where credit, investment, and consumption respond to monetary policy with lags.

In sum, the hold at 6.50% confirms that Banxico sees clear progress on inflation, but is prioritizing caution amid domestic and external risks; the next leg will depend less on a single data point and more on a convincing trend in core inflation and in expectations.