Private-sector economists in Mexico have lowered their inflation outlook for the end of 2026. On Wednesday, the Bank of Mexico, widely known as Banxico, released the findings of its latest survey, in which analysts not only trimmed their price forecasts but also refreshed their estimates for economic growth, the exchange rate and the interbank lending rate.
Why the inflation forecast came down
According to the survey, headline inflation is now expected to finish the year at 4.20%, down from 4.35% in the previous poll, a clear step lower. Core inflation, which strips out volatile items such as food and fuel and is treated as a cleaner read on the underlying price trend, is projected to slip from 4.22% to 4.18%.
Growth and the peso
On the growth front, Gross Domestic Product (GDP) is forecast to expand 1.10%, exactly the same as in the prior poll. For 2027, analysts left their projection untouched at 1.80%.
On the currency side, the USD/MXN pair is expected to close the year at 17.95, a touch higher than the earlier estimate of 17.85. In practice that points to slightly softer footing for the peso against the dollar. For 2027, the projection was held steady at 18.50.
As for the interbank lending rate, economists expect it to stay put at 6.50% both for the remainder of this year and through 2027, leaving little room for a change in their view.
What Banxico actually does
The Bank of Mexico is the country's central bank. Its core job is to preserve the value of Mexico's currency, the Mexican Peso (MXN), and to set monetary policy. To do that, its main priority is keeping inflation low and stable, aiming for a target of 3%, the midpoint of a tolerance band that runs from 2% to 4%.
The bank's primary tool for steering monetary policy is setting interest rates. When inflation runs above target, Banxico tries to rein it in by raising rates, which makes borrowing more expensive for households and businesses and, in turn, cools the wider economy.
How rates and the peso are linked
Higher interest rates are generally seen as good news for the Mexican Peso (MXN), since they deliver better yields and make the country a more appealing destination for investors. Lower rates, on the other hand, tend to weaken the peso. A big part of this equation is the rate gap with the US dollar, meaning how Banxico is expected to set its rates relative to the US Federal Reserve (Fed).
Marching in step with the Fed
Banxico holds eight meetings a year, and its monetary policy is heavily shaped by the decisions of the US Federal Reserve. That is why the central bank's decision-making committee typically gathers a week after the Fed. By doing so, Banxico reacts to the Fed's moves and, at times, gets ahead of them.
A striking example came after the Covid-19 pandemic. Before the Fed raised rates, Banxico had already done so, aiming to reduce the risk of a sharp depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could have destabilized the country.
