Banxico concludes rate cut cycle, holds at 6.50 percent
Banco de México Governor Victoria Rodríguez announced the central bank has concluded its rate cut cycle, holding the policy rate at 6.50 percent. The decision, made at the May meeting, considers economic weakness, contained inflation pressures, and the accumulated monetary restriction.
Mexico's economy shrinks, rate cuts end
Mexico's economy contracted by 0.6 percent in the first quarter of 2026, prompting Banco de México to revise its 2026 GDP growth forecast down to 1.1 percent.
This reflects a period of marked weakness, with declining private consumption and fixed investment, though manufacturing exports saw growth.
General inflation moderated to 4.11 percent in mid-May, with core inflation at 4.22 percent.
Merchandise inflation is decreasing, while services inflation remains persistent.
Non-core inflation experienced a temporary spike from fruit and vegetable prices.
Banxico anticipates general inflation to fall below 4 percent by Q3 2026 and converge to the 3 percent target by Q2 2027.
In response, the central bank cut its policy rate to 6.50 percent in May, concluding the easing cycle that began in March 2024.
Governor Rodríguez stated the current rate is appropriate to anchor inflation expectations and address macroeconomic challenges, including geopolitical risks from the Middle East conflict.
Banking resilience, payment innovation
Mexican financial markets have shown volatility amid geopolitical tensions, yet the peso's performance remains favorable, supported by strong fundamentals.
Government bond yields have risen, largely mirroring global trends, with markets operating orderly.
The national financial system remains strong and resilient, underpinned by the solidity of Mexican banks, which comfortably meet robust regulatory requirements.
The banking sector is prepared for challenging episodes, with details to follow in the upcoming Financial Stability Report.
Banks show prudent credit provision, historically low non-performing loan ratios of 2.42 percent, and healthy 12-month return on equity at 17.0 percent as of February 2026.
Banco de México is advancing regulatory changes to enhance financial market efficiency, promoting central counterparties for bond trades and stabilizing the TIIE de Fondeo reference rate.
Digital payment services are also being expanded through standardized electronic transfer alternatives.
Cautious confidence, strategic reforms
Banco de México's assessment reveals an economy facing contraction and persistent inflation, yet supported by a robust financial system.
Concluding the rate cut cycle, despite economic weakness, signals cautious confidence in the disinflationary path, projecting a gradual return to target by mid-2027.
This strategic focus on financial market development and digital payment innovation underscores a proactive commitment to structural improvements amidst macroeconomic headwinds.