Mexico | Does Banxico operate under a strict IFT regime?

Summary

In Banxico's monetary policy statement of March 26, 2026, two messages coexist: on the one hand, the forecasts for headline and core inflation are adjusted upwards between 1Q26 and 3Q26 with a balance of risks having an upward bias; on the other hand, the Board of Governors reduces the reference rate by 25 basis points.

Key points

• Key points:
• The situation described in the summary indicates that the central bank is not operating under a strict IFT (Inflation Forecast Targeting).
• The rationale behind the monetary policy decision rests on a more flexible interpretation: even with a deteriorating short-term inflation outlook, convergence to the 3% target is still considered feasible in the medium term.
• Meanwhile, weak economic activity and the degree of accumulated monetary tightening justify a gradual easing of the monetary policy stance.
• This complicates the central bank's communication strategy, as Banxico's primary mandate is to ensure the stability of the national currency's purchasing power.
• To avoid undermining the credibility of the inflation target, Banxico could justify its decision by publishing inflation and output gap forecasts for alternative scenarios of the benchmark interest rate path, complementing these forecasts with indicators of deviations from the objectives (inflation target and potential GDP) such as the mean square gap (for the forecast horizon).

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