Publications

The euro closed 2025 with a significant appreciation against the dollar, supported, among other factors, by a fiscal and strategic shift in Europe. In 2026, its strength will depend less on interest rate differentials and more on institutional credibility, growth, and the geopolitical environment.

Elevated term premia likely driven by fiscal and institutional risks keep long-end yields high despite stable inflation expectations. Outside isolated episodes of turbulence, markets have reflected favorable conditions over the year and throughout the easing cycle.

For the fifth consecutive meeting, BanRep held the policy rate steady at 9.25% in a split decision. Although inflation eased in November, it remains above the target, in a context of dynamic domestic demand supported by high consumption.

The Board noted the uncertainty surrounding the inflation shock expected in early 2026 stemming from recently approved fiscal measures, which “are estimated to have a temporary effect, not necessarily proportional, on prices.”

At this stage, the Board will likely refocus on the risks associated with the persistence of core inflation—particularly in services—and on the temporary inflation shock expected in early 2026, despite the significant weakness of the economy and the strength of the MXN.

This presentation analyzes the recent evolution of monetary policy in Latin America and three of its main challenges: its interaction with fiscal policy, the increase in natural interest rates, and the impact of increased uncertainty on economic policies.

The outlook for the global economy in the second half of the year is proving more positive than expected around April, when the protectionist shock from the US economy materialized.