Central bank holds interest rates steady as peso slips toward its worst week since March

Mexico’s central bank (Banxico) maintained its benchmark interest rate at 6.50% for the third consecutive meeting on Thursday, indicating that it has clearly decoupled from the U.S. Federal Reserve, which raised its benchmark rate by 25 basis points last week.

A statement issued by Banxico’s Board of Governors sought to avoid speculation regarding future decisions, analysts said, though a more restrictive stance by the Fed could extend the pause or even prompt a rate increase next year.

Banxico’s monetary policy decision was unanimous and was taken “after assessing the behavior of the peso exchange rate, the differentiated economic cycle between Mexico and the United States, the absence of demand pressures [in Mexico] and the degree of monetary restriction implemented.”

Although Banxico made adjustments to its short-term inflation forecasts, it still expects the overall indicator to converge to the target in the fourth quarter of 2027. It also reaffirmed its commitment to persevering in its efforts to consolidate a low and stable inflation environment.

“Looking ahead, the Governing Board will make its decisions considering the continuation of the disinflationary process and the expected behavior of its determinants, including the pass-through of the exchange rate to consumer prices, slack conditions and inflation expectations,” the statement said.

José Luis Ortega, an analyst at BlackRock Mexico, told El Financiero that the forward-looking guidance sought to convey Banxico’s interest in being separate from the Fed, especially because the Board would like its next move to be downward.

This would be difficult, Ortega said, if the Fed raised rates more than twice overall.

“I think [Banxico] would have to react and raise the rate then,” he said. “The key signal to monitor is primarily the exchange rate.”

In that regard, the peso continued weakening slightly against the U.S. dollar on Friday morning, on pace to lose ground for the fourth consecutive session and on track for its worst week since March. It depreciated about 1.2% immediately following Banxico’s announcement.

By 11:30 a.m. Friday, the exchange rate — which analysts say will continue to react to the interest rate outlook in Mexico and the U.S. — had slipped to 17.7152, down another 0.06% from Thursday’s close.