Banxico ‘freezes’ its interest rate for the second consecutive time

The central bank said that although the depreciation of the national currency has an upward influence on the inflation forecast, its effects are partly offset by those corresponding to the greater weakness of economic activity.

“Interest rates on medium and long-term government securities increased significantly. The Mexican peso registered a visible depreciation. However, more recently the national markets have presented better behavior,” highlighted the Bank of Mexico in its statement.

Analysts are closely monitoring the volatility in the exchange rate and its possible effects on inflation.

“One of the first impacts of the elections on June 2 was the significant drop in the prices of the main financial assets denominated in Mexican pesos. The concern among investors is that this volatility will spread and at a certain point a constant depreciation of the exchange rate could lead to a transfer to inflation,” CI Banco highlighted in a report.

Despite this volatility, CI Banco believes that not lowering the rate for fear of volatility would be like accepting that the Mexican economy faces a greater country risk at the end of this public administration and the beginning of the next one.

Inflation expectations rose for the second and third quarters of this year and Banxico estimates that in the fourth quarter of 2025 it will finally be possible to converge to the inflation goal of 3%.