Mexico | Banxico set to extend the pause despite Fed hike

We expect Banxico to keep the policy rate unchanged at 6.50% this week and to reiterate that the current stance remains appropriate, looking through a preemptive Fed hiking cycle amid diverging business cycles in the two countries.

Key points

• Key points:
• Last week, the Fed unanimously raised the fed funds rate by 25 bps to 3.75-4.00%, underscoring its commitment to preserving policy credibility.
• In Mexico, the 2Q26 rebound was partially supported by a recovery in gross fixed investment, but whether this signals a lasting recovery remains unclear.
• Labor market conditions continue to point to a still-weak recovery: formal employment growth (ex digital platform workers) remained around 1.2% y/y in August.
• Core services inflation continued to ease only gradually, declining from an average 4.5% in 1H26 to 4.36% in July and 4.33% in August.
• Orderly financial market conditions persist even as the rate spread narrowed to 250 bps for the first time since Banxico adopted the interest rate as its policy instrument.

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