The minutes from the Bank of Mexico's (Banxico) August meeting indicate that the central bank intends to maintain its main interest rate at 6.50% for an extended period, despite signs of easing inflation. This decision was made unanimously at the August 6 meeting, with policymakers emphasizing that the current rate level is appropriate given ongoing global uncertainties and persistent upside risks to inflation [1].
Banxico's governing board highlighted several external risks, notably the potential negative impact of the escalating Middle East conflict on global economic activity and inflation. Most members agreed that these geopolitical tensions continue to pose upside risks to inflation. Additionally, while Mexico's GDP expanded in the latest quarter, the output gap remains in negative territory, suggesting that economic activity has not yet fully recovered [1].
The minutes also revealed that the decline in core inflation was primarily driven by a reduction in merchandise inflation. However, most members expect headline and core inflation to continue declining throughout the forecast horizon, albeit at a more gradual pace than previously anticipated. The persistence of services inflation and potential inflationary pressures from the intensification of the El Niño phenomenon in the second half of the year were also noted as concerns [1].
Looking forward, one board member projected that economic growth in 2026 could exceed Banxico's current forecast of 1.1%, while another expressed that the balance of risks for economic activity remains biased to the downside. Most members believe that the determinants of inflation will remain consistent with an outlook of lower inflationary pressures, but the balance of risks for inflation remains tilted to the upside [1].
CONCLUSION
Banxico's latest minutes underscore a cautious stance, with the central bank signaling a prolonged pause in rate changes amid easing inflation but persistent global and domestic risks. The board remains vigilant, balancing downside risks to growth with upside risks to inflation, and is prepared to maintain current policy until greater clarity emerges.