Mexico's central bank raises growth forecast, pushes back inflation convergence

• Banxico now expects headline inflation to reach its 3% target in the fourth quarter of 2027, pushing back its previous forecast that inflation would hit target in the second quarter.
• The bank raised its core inflation forecast for the fourth quarter of this year to 3.5% from 3.4%.
• Latest data showed headline inflation for the first half of August at 3.26% and core inflation at 3.93%.

Despite raising the economic growth forecast, the bank said economic activity continues to face a period of weakness, with uncertainty surrounding annual reviews of the U.S.-Mexico-Canada trade agreement.

The updated economic forecast for 2026 growth reflects stronger-than-expected second-quarter activity, partially offset by a sharper-than-anticipated slowdown in the third quarter, the bank said.

The central bank trimmed its 2027 growth outlook to 2.0% from 2.1%.

Banxico's latest report comes after the central bank unanimously held its interest rate at 6.5%, underscoring the challenge of taming price pressures in Latin America's second-largest economy.

Looking ahead, the governing board considers it appropriate to maintain the reference rate at its current level, the bank said.

However, Governor Victoria Rodriguez said maintaining the monetary policy rate going forward is not predetermined.

"Its future level will depend on our assessment of the inflation outlook," Rodriguez said.