Mexico’s central bank strikes a cautious balance between growth and price stability.

The Bank of Mexico (Banxico) has revised its 2025 GDP growth forecast upward to 0.6%, a notable increase from its previous 0.1% estimate. This adjustment reflects better-than-expected performance in the second quarter, despite persistent global and domestic challenges.

Banxico also raised its 2026 growth outlook to 1.1% (from 0.9%), signaling cautious optimism for Mexico’s economic trajectory. However, the higher growth projections come alongside increased inflation expectations, with headline inflation now forecast at 3.7% for late 2025, compared to the earlier projection of 3.3%. Core inflation, which excludes volatile items like food and energy, is also expected to rise to 3.7%.

Despite these upward revisions, Banxico remains committed to achieving its 3.0% ±1 percentage point target by the third quarter of 2026.

Earlier this month, Banxico cut its benchmark interest rate to 7.75%, its lowest level in three years, following a narrow decision by policymakers. This reflects a careful balancing act: stimulating growth while managing inflationary pressures.

The combination of improved growth prospects and a more accommodative monetary policy could encourage investment and household spending, though inflation risks warrant ongoing caution. These dynamics will shape Mexico’s economic climate in the months ahead, influencing everything from lending conditions to consumer purchasing power.

Source:
Bloomberg