Mexico’s central bank raised its 2026 growth projection to 1.5 percent from 1.1 percent but pushed the expected return to its 3 percent inflation target from the second quarter of 2027 to the fourth, according to the Quarterly Report for Q2 2026 released on Wednesday. The revisions leave policymakers with a stronger near-term expansion but a longer wait for price stability, a combination that keeps the policy rate path uncertain.

The growth revision

The upgrade to this year’s GDP forecast reflects stronger-than-anticipated activity in the second quarter, Banxico said. The 2027 projection was trimmed to 2.0 percent from 2.1 percent, suggesting the bank sees the current momentum fading into next year. Growth risks are described as balanced to the downside, a phrasing that signals concern without committing to a further cut.

The inflation delay

Headline inflation is now seen averaging 3.5 percent in the fourth quarter of 2026, unchanged from the previous report, while core inflation for the same period was nudged up to 3.5 percent from 3.4 percent. Both measures are forecast at 3.0 percent by the end of 2027, matching earlier estimates. The convergence delay means the 3 percent midpoint of the tolerance band will not be reached until six months later than previously projected, extending the period in which inflation runs above target.

USMCA uncertainty weighs

Banxico flagged the ongoing review of the USMCA trade agreement as a source of weakness for the national economy, describing the external environment as complex and subject to significant geopolitical risks. Inflation risks remain skewed to the upside, driven by persistent core pressures, trade disruptions, geopolitical tensions, climate shocks, cost pressures and possible peso depreciation. The bank meets eight times a year and typically follows the Federal Reserve by a week, so the Fed’s next moves will frame Banxico’s room to maneuver.

What to watch

The next policy decision will test whether the growth upgrade emboldens officials to hold rates steady or whether the inflation delay argues for keeping them restrictive. Markets will parse the minutes for any shift in the balance-of-risks language, especially on the peso and the USMCA timeline. For now, the central bank has bought itself a stronger growth number at the cost of a later inflation victory.