Financial Markets

In July 2026, the growth of outstanding credit to the Non-Financial Private Sector (2.9% in real annual terms) remained near the year's highs, driven by consumer and business lending. Deposit growth slowed to 2.3% in real annual terms, reflecting a sharp slowdown in time deposits.

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.

The FOMC unanimously raised the fed funds rate by 25 bps to 3.75-4.00%, underscoring its commitment to policy credibility. We expect only one additional 25bp increase, most likely in December. We then expect the Fed to remain on hold through 2027.

While far from a done deal, Warsh’s Fed has effectively cornered itself into a hike with its hawkish rhetoric. We now lean toward a 25bp rate hike aimed at preserving policy credibility, though a hold remains a distinct possibility.

The ECB raised rates again while keeping all options open for what comes next. The meeting confirms that the return of inflation to target will take longer than previously expected and puts December increasingly in focus.

The CBRT again kept the policy rate and the interest corridor unchanged at 37% and 35.5-40%, respectively, in line with the market consensus. Following the CBRT’s earlier and faster-than-expected easing as of August 23rd, today’s decision appears to signal caution amid the renewed rise in energy prices.

The report analyzes the undervaluation issue of the RMB. Based on the MB and BEER models, it concludes that while there indeed exists periods of undervaluation, its degree of undervaluation is significantly lower than often claimed.