Economics: Banxico holds the reference rate at 6.5% after the Fed raises its rate range
Banxico held its reference rate at 6.5% for a third consecutive meeting, once again unanimously, following a cutting cycle that we consider to have been accelerated and that now leaves the central bank with little room to maneuver. Core inflation, sustained by resilient services prices, eight years of double-digit minimum wage increases, and recent IEPS adjustments, still shows no clear downward trend, while the decline in headline inflation depends almost entirely on a volatile non-core component that monetary policy has little ability to control. The international backdrop is complicating the picture: the Federal Reserve broke its pause with a 25-basis-point hike and is signaling further increases. As a result, the spread between Banxico's rate and the Fed's fell to its lowest level since 2008, just 250 basis points versus 600 in 2022-2023. This sharply reduces Banxico's ability to respond to further Fed moves or to episodes of financial volatility, USMCA reviews with negative implications for the Mexican economy, or changes to Mexico's sovereign credit rating.
Adding to this is the geopolitical risk to energy prices—particularly diesel, affected by tensions in the Middle East and Ukraine—for which the pass-through to transportation and goods is compounded by the limited fiscal space available to sustain fuel subsidies. Banxico's own acknowledgment of upside risks contrasts with its persistent easing bias, a stance that, absent an explicit signal of willingness to raise rates if conditions warrant, is difficult to reconcile with the narrowness of the rate spread and with the pressures already visible in long-term rates and medium-term exchange-rate stability.
Regarding last week's indicators, the Global Economic Activity Indicator (IGAE) grew 3.3% year on year in July 2026 on a seasonally adjusted basis, following 2.0% average annual growth in the second quarter—a recovery from the first quarter's 0.3% annual growth. Cumulative growth for January-July stands at 1.5%.
As in previous months, July's momentum came mainly from wholesale trade and construction, both of which had shown significant volatility in prior months, with sharp declines in some of them, particularly over the past year. However, services as a whole also showed a recovery, driven—in addition to wholesale trade—by entertainment services and retail trade, which had posted very weak gains in preceding months.
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