Rates seen holding at 6.50% through 2027, Peso around 18.40 in Banxico survey

Higher inflation forecasts from most analysts featured in the Bank of Mexico’s October survey of private economists, published on Tuesday. Respondents also expect USD/MXN to end the year close to the psychological 18.50 level.

For 2026, the median forecast for headline inflation edged up to 3.88% from September’s 3.87%, while the 2027 projection stands at 3.85%. Economists expect core inflation to reach 3.82% at year-end, a downward revision from 3.90%, and to stand at 3.82% in 2027.

The growth forecast for Mexico’s economy in 2026 has risen to 1.50% from 1.40% a month earlier. Analysts project an expansion of 1.83% in 2027, approaching the 2% mark.

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Analysts expect Banxico to leave interest rates at 6.50% for the remainder of 2026 and into 2027. Their USD/MXN forecasts put the exchange rate at 18.39 by year-end and close to 18.64 in 2027.

Banxico Explained

The Bank of Mexico Targets Price Stability

As Mexico’s central bank, the Bank of Mexico, or Banxico, sets monetary policy and works to safeguard the value of the national currency, the Mexican Peso (MXN). Its primary objective is therefore to keep inflation low and stable, at or near its 3% target. That target sits at the midpoint of a tolerance band ranging from 2% to 4%.

Banxico’s Interest Rate Decisions Influence the Mexican Peso

Interest rates are Banxico’s principal monetary policy instrument. To curb inflation when it exceeds the target, the bank raises rates, increasing borrowing costs for households and businesses and slowing economic activity. By lifting yields and making Mexico more attractive to investors, higher rates generally support the Mexican Peso (MXN). Lower rates, by contrast, typically weigh on MXN. A key consideration is the interest rate differential with the USD, including expectations for Banxico’s rate decisions relative to those of the US Federal Reserve (Fed).

Banxico Holds Eight Policy Meetings Each Year

Decisions by the US Federal Reserve (Fed) have a strong influence on Banxico’s monetary policy. The Mexican central bank holds eight meetings annually, with its decision-making committee generally convening a week after the Fed. This allows Banxico to respond to, and at times anticipate, the Federal Reserve’s policy measures. Following the Covid-19 pandemic, for instance, Banxico began raising rates before the Fed. It sought to reduce the risk of a sharp depreciation in the Mexican Peso (MXN) and avert capital outflows that could destabilise the country.