MEXICO CITY — Mexico's central bank held its benchmark interest rate at 6.5 percent, with all five board members voting to pause after a cumulative 400 basis points of hikes since June 2021.
Banxico now projects inflation will not return to its 3 percent target until the second half of 2025, six months later than previously forecast. Consumer prices rose 7.7 percent year-over-year in July. Core inflation — which strips out volatile food and energy prices — ran at 7.2 percent, signaling broad-based price pressure. The bank cited both external shocks and domestic demand as contributing factors.
The peso strengthened modestly against the dollar following the announcement. Mexican sovereign yields were little changed across the curve; the hold had been widely anticipated, limiting volatility in the fixed-income market.
The extended inflation timeline raises duration risk for investors holding longer-dated Mexican government bonds, as rates stay elevated longer than previously expected. A higher-for-longer rate environment also squeezes corporate spreads, raising financing costs for Mexican companies and weighing on investment.
Banxico's next policy meeting is scheduled for Sept. 28. The bank will publish its next quarterly inflation report in November, offering updated forecasts and a potential revision to its forward guidance.
