Publications

At its June meeting, the Central Bank’s Board decided to keep the policy rate unchanged at 4.50%. The monetary policy stance, measured by the ex-ante real reference rate, remains around neutral.

The sensitivity remains on growth and employment outlook, potentially generating a policy mix where monetary stance staying relatively tighter compared to our early March baseline scenario and fiscal policy not being able to be tightened as targeted in the Medium Term Program (MTP).

Domestic demand remains strong, despite some recent signs of moderation. However, the lagged effects of sharp monetary tightening—now mostly over—along with less expansionary fiscal policy and a less supportive global backdrop are expected to pave the way for a deceleration of both GDP growth and inflation.

Economic activity is deteriorating due to heightened uncertainty; tariffs are affecting an economy already weakened by judicial reform and fiscal consolidation. We forecast GDP to contract by (-)0.4% in 2025, with a recovery expected in 2026 (1.2%).

The most interesting thing about last week’s ECB meeting was not the decision made, but the promise of hints as to what it might do next. Ultimately, the 25-basis point cut in the main reference rates had already been widely priced in by analysts and markets.

The ECB cut rates to 2% with broad consensus and signaled the rate-cutting cycle may be nearing its end. While confident in the inflation path, high geopolitical and trade uncertainty keeps future decisions open.

A notable development in recent weeks has been the rise in the 30-year Treasury yield, likely driven by growing concerns over U.S. fiscal sustainability and reduced global appetite for U.S. Treasuries as bond investors want to be rewarded for higher risks.

A key indication that Banxico's primary concern has shifted from inflation to growth is its acknowledgment, for the first time, that “since the inflationary episode has been left behind,” the fight against inflation is at a new stage.