Key Moments
- Banxico kept its policy rate unchanged at 6.50% at the June 25 meeting, with a unanimous decision in line with survey expectations.
- Rabobank expects Banxico, the Bank of Canada, and the Federal Reserve to keep rates on hold through year-end.
- Rabobank projects USD/MXN to hover near current levels over the summer, with a year-end target of 17.6 and limited impact from USMCA-related risks.
Central Bank Policy Outlook
Rabobank strategists Christian Lawrence and Molly Schwartz highlight that Banco de México (Banxico) left its benchmark rate at 6.50% at the June 25 policy meeting, matching consensus expectations. The strategists note that the result was fully anticipated by market participants.
They emphasize that the decision aligns with their broader view that Banxico will keep rates unchanged through the end of the year. This stance is consistent with their expectations for both the Bank of Canada (BoC) and the Federal Reserve (Fed), where they see no policy moves before year-end. For the BoC, they reference a policy rate of 2.25%, and for the Fed, they cite an upper bound of 3.75%.
Details From the June 25 Banxico Decision
The strategists underscore that the rate announcement contained few surprises for investors and analysts. Banxico’s decision and its communication reinforced the view of stable policy settings over the coming meetings.
| Central Bank | Policy Rate | Rabobank View |
|---|---|---|
| Banxico | 6.50% | On hold through year-end |
| Bank of Canada (BoC) | 2.25% | On hold through year-end |
| Federal Reserve (Fed) | Upper bound of 3.75% | On hold through year-end |
Commenting on the outcome, the strategists write: “Banxico left the policy rate unchanged at 6.50% at the June 25 meeting, as was widely expected by both traders and analysts (26 out of 26 in the Bloomberg survey). As expected, the decision was unanimous.”
They continue: “We fully expect Banxico to remain on hold throughout this year. The same view as we hold for the Bank of Canada (2.25%) and the Federal Reserve (upper bound of 3.75%).”
According to the statement, “Banxico explicitly stated its plan to keep rates unchanged at 6.50% over the coming meetings.”
Market Reaction and USD/MXN Outlook
The strategists observe that the policy announcement had virtually no immediate impact on the foreign exchange market. In their words, “There was little to surprise the market at this meeting and the reaction was virtually non-existence, with USD/MXN not budging at all.”
Looking ahead, Rabobank maintains that USD/MXN is likely to remain within a tight range during the summer months. They reaffirm their base case projection for the currency pair at 17.6 by the end of the year.
They state: “We maintain the view that USD/MXN will predominately trade around current levels this summer with a base case forecast of 17.6 by year end. We see little USMCA premium as likely to emerge with a move to annual reviews following a lack of 16 year renewal come July 1.”
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