Banxico Rate Stability Supports Peso Carry Trade Appeal

Key Moments

Banxico Holds Rate, Reaffirms Restrictive Stance

Rabobank strategists Molly Schwartz and Christian Lawrence highlight that Mexico’s central bank, Banxico, unanimously decided to leave the overnight policy rate unchanged at 6.50% on August 6. The central bank continues to characterize its current monetary setting as appropriate.

According to them, Banxico now projects that inflation will not converge until Q4 2027 and judges that risks to the inflation outlook remain tilted to the upside. In this context, they anticipate that Banxico will keep the policy rate at 6.50% across both 2026 and 2027.

Assessment of the Decision and Forward Guidance

The analysts note that the outcome of the latest policy meeting aligned with market expectations:

“Banxico announced its decision to hold the overnight policy rate at 6.50%, as was unanimously anticipated by Bloomberg surveyed analysts, including ourselves.”

They also point to earlier commentary from Banxico leadership and the accompanying policy statement to underline the central bank’s confidence in its current stance:

“Going into the meeting, Banxico Governor Cuadra said that he felt the “monetary policy stance is the right one at the moment,” and the Banxico statement went one step further, arguing that the Governing Board “judges that the monetary policy stance is well-suited to face the challenges posed by the macroeconomic environment, including those associated with the international context.””

The Rabobank team reiterates its policy outlook:

“We maintain our view that Banxico will hold the overnight policy rate at 6.50% through 2026 and 2027, and see USD/MXN trading sideways between 17 and 18 on a 12-month view, as comparatively higher rates in Mexico support MXN carry demand.”

The central bank’s own communication reinforces this bias toward an extended hold:

“Looking ahead, the Governing Board estimates that it will be appropriate to maintain the reference rate at its current level.”

“With the presence of all its members, the Board decided unanimously to maintain the target for the overnight interbank interest rate at 6.50%.”

Implications for MXN and Carry Trades

Rabobank’s view suggests that Mexico’s relatively elevated rates compared with other markets should continue to support demand for peso-denominated carry trades. They foresee USD/MXN staying in a 17-18 range over the next 12 months, describing that move as largely sideways.