Mexico Keeps Rate

Analysts expect Banxico to leave the Overnight Interbank Rate unchanged at 6.50% (would resume pause under the current phase of its easing cycle. Analysis: May Statement/Minutes: - Would be appropriate to maintain the reference rate at its current level - Judged that the monetary policy stance was well-suited to face the challenges posed by the macroeconomic environment, including those associated with an extension and escalation of the Middle Eastern conflict and its repercussions Quarterly Inflation Report (QIR) (released in May) Growth outlook (central scenario) - Cut 2026 GDP estimate from 1.6% to 1.1% - Raised 2027 GDP from 2.0% to 2.1% Inflations: - Cut 2026 avg annual inflation from 3.5% to 3.0%, maintains core inflation at 3.4% - Maintained 2027 avg annual inflation at 3.0%; maintains core inflation at 3.0% Recent data: - On Jun 9th Mexico May CPI M/M: -0.2% v -0.1%e; Y/Y: 4.0% v 4.0%e (**Note: Mexico has a 2-4% CPI target range. May reading saw the annual pace move back within target range for 1st time in 3 months). - On May 22nd Mexico Q1 Final GDP Q/Q: -0.6% v -0.8% prelim; Y/Y: 0.2% v 0.1% prelime (**Note: Q4 YoY was 1.8%) - On Jun 23rd Mexico Apr Economic Activity Index (Monthly GDP) M/M: 1.2% v 0.8%e; Y/Y: 2.3% v 1.8% Recent comments: - On Jun 22nd Mexico CitiBanamex Survey of Economists cut 2026 GDP growth forecast from 1.2% to 1.1% while maintaining 2027 GDP growth forecast from 1.8%. Survey cut 2026 headline CPI forecast from 4.35% to 4.23% and cut 2027 headline CPI forecast from 3.9% to 3.8% - On Jun 1st Mexico Central Bank (Banxico) Economist Survey maintained 2026 year end headline CPI forecast at 4.4% and maintained the 2026 core CPI forecast at 4.2%. Survey cut 2026 GDP growth forecast from 1.4% to 1.1% and cut 2027 GDP growth forecast from 1.9% to 1.8% - On May 27th Mexico Central Bank (Banxico) Quarterly Inflation Report cut 2026 avg annual inflation from 3.5% to 3.0% while maintaining core inflation at 3.4%. Report maintained 2027 avg annual inflation at 3.0% and maintained core inflation at 3.0% - On May 21st Mexico Central Bank (Banxico) May Minutes noted that all board members highlighted risks related to mid east conflict - On May 7th Mexico Central Bank (Banxico) cut the Overnight Interbank Rate by 25bps to 6.50% (as expected) for its 2nd straight cut (15th overall) under the current phase of its easing cycle. Vote to cut was not unanimous (4-2) with dissenters Heath and Borja voting to hold rates at 6.75%. Statement noted it had raised Q2 inflation from 4.0% to 4.1% but expected inflation to converge to target 3.0% in Q2 of 2027. Economic slack was expected to be greater than previously anticipated and, looking ahead, significant downward risks persisted. ** Insight: Mexico Central Bank has cut its Key Rate 15 times in the current easing cycle by a total of 475bps. The last cut was in May 2026 (last meeting)