Banxico lifts 2026 GDP forecast, delays inflation target return

On Wednesday, the Bank of Mexico (Banxico) released its Quarterly Report for Q2 2026, in which it revised its forecasts for economic growth and inflation.

For 2026, Banxico revised up its growth forecast from 1.1% to 1.5%, but it delayed inflation convergence to its 3% goal from the second quarter of 2027 to the last quarter of the same year.

Regarding core inflation, the Mexican institution expects the Consumer Price Index (CPI) to rise from 3.4% to 3.5% in the fourth quarter. It also acknowledged that economic activity is showing signs of weakness due to uncertainty surrounding the review of the USMCA trade agreement.

Key highlights:

HEADLINE INFLATION SEEN CONVERGING TO 3% TARGET IN Q4 2027 (NOT Q2)

FORECASTS 2026 GDP GROWTH AT 1.5% VERUSUS 1.1% IN PREVIOUS QUARTERLY REPORT

FORECASTS 2027 GDP GROWTH AT 2.0% VERSUS 2.1% IN PREVIOUS REPORT

FORECASTS AVERAGE ANNUAL HEADLINE INFLATION IN Q4 2026 AT 3.5% VERSUS PREVIOUS ESTIMATE OF 3.5%

FORECASTS AVERAGE ANNUAL CORE INFLATION IN Q4 2026 AT 3.5% VERSUS PREVIOUS ESTIMATE OF 3.4%

NATIONAL ECONOMY CONTINUES TO EXPERIENCE A PERIOD OF WEAKNESS AND FACES A COMPLEX EXTERNAL ENVIRONMENT SUBJECT TO SIGNIFICANT GEOPOLITICAL RISKS

FORECASTS AVERAGE ANNUAL CORE INFLATION IN Q4 2027 AT 3.0% VERSUS PREVIOUS ESTIMATE OF 3.0%

FORECASTS AVERAGE ANNUAL HEADLINE INFLATION IN Q4 2027 AT 3.0% VERSUS PREVIOUS ESTIMATE OF 3.0%

NATIONAL ECONOMY CONTINUES TO EXPERIENCE A PERIOD OF WEAKNESS WITH UNCERTAINTY SURROUNDING THE USMCA ANNUAL REVIEW PROCESS PROCESS

BALANCE OF RISKS FOR ECONOMIC GROWTH IS BALANCED TO THE DOWNSIDE

BALANCE OF RISKS FOR INFLATION REMAINS SKEWED TO THE UPSIDE, DRIVEN BY PERSISTENT CORE INFLATION, TRADE DISRUPTIONS, GEOPOLITICAL TENSIONS, CLIMATE SHOCKS, COST PRESSURES AND POSSIBLE PESO DEPRECIATION

REVISION TO THE 2026 GDP FORECAST STEMS FROM STRONGER-THAN-ANTICIPATED ECONOMIC ACTIVITY GROWTH IN THE SECOND QUARTER

Banxico FAQs

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.

The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.

Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.