Bank of America is forecasting that Mexico's central bank will maintain its benchmark interest rate at 6.50% at the policy meeting scheduled for August 6. Market pricing ahead of the meeting is aligned with that expectation, with traders not anticipating a change in the rate.
The bank's assessment follows a stronger-than-expected gross domestic product print, which Bank of America economist Carlos Capistran says does not alter the firm's outlook for BANXICO. According to the bank, the recent uptick in growth narrows downside risks to the economy, but it stops short of signaling any immediate threat of overheating.
Bank of America judges that slack persists in Mexico's economy. Both headline and core measures of inflation are currently below 4 percent, a condition the bank interprets as creating space for the central bank to exercise patience in its policy stance.
Under Bank of America's baseline scenario, BANXICO will remain on hold for the remainder of the year and is likely to keep rates steady until the mid-term elections in 2027. The institution notes that this expectation holds even in a scenario where the U.S. Federal Reserve increases interest rates further.
On the U.S. side, Bank of America's economists continue to anticipate additional tightening from the Federal Reserve, projecting three rate hikes this year.
Context and implications
Bank of America's view rests on three core observations drawn from recent economic readings: a stronger GDP outcome that reduces downside risks, persistent slack in the domestic economy, and headline and core inflation readings below 4 percent. Taken together, those elements form the basis for the bank's expectation that the central bank has room to remain on pause.
The projection that BANXICO will keep policy unchanged even if the Federal Reserve tightens further is presented as BofA's baseline rather than a definitive outcome. The bank's U.S. economists' forecast of three Fed hikes this year is an input to that scenario, but does not by itself change BofA's call for Mexico's policy path.
Bottom line
Bank of America expects a hold at 6.50% at the August 6 meeting, and maintains a steady-rate outlook for the rest of the year and likely until the 2027 mid-term elections, citing below-4 percent inflation metrics and remaining economic slack.