Banxico Minutes: Most members commented that global uncertainty has increased, mainly due to escalating geopolitical tensions. They highlighted that the conflict in the Middle East could have a negative impact on global economic activity

Economic Activity in Mexico

• Most members underlined that economic activity  has been showing a lower dynamism.
• One  member indicated that in the fourth quarter of 2025
• In the face of the Middle East conflict, all  members indicated that international financial  markets registered volatility
• Most members commented that the balance of  risks to economic activity has become more  biased to the downside in light of the conflict in  the Middle East.
• Most members observed that, looking ahead,  slack conditions are expected to prevail in the  Mexican economy.

Inflation in Mexico

• They also noted that, as expected, there is no  evidence of second-round effects on inflation.
• Regarding the potential  effects of the tariff measures introduced in early  2026, most members considered that there have  been no signs of potential effects on inflation,  particularly on its non-food merchandise  component.
• Most members expressed that services inflation  registered limited changes during the period.
• The majority emphasized that the rise in prices of  these agricultural products is associated with a  transitory supply shock.
• Most members underlined that short-term  inflation expectations were revised upwards.
• Most members considered that the balance of risks for the foreseen trajectory of inflation within the forecast horizon remains biased to the upside

Dissenting Opinions

Heath

• The conventional determinants of inflation that last  year supported the expectation of a downward trend  were insufficient to prevent the persistence of core  inflation. Currently, these factors are weak. 
• The  negative output gap will narrow further in an  economy that is recovering, while at the same time  the lagged effect of a restrictive monetary policy  dissipates. 
• The balance of risks for inflation has tilted  far more to the upside. First, due to an increased  uncertainty regarding inflation as a result of the new  military conflict. Second, due to an unanticipated  shock on agricultural prices that should dissipate  over the next months. 
• Since we are facing greater  risks, we have nothing to lose by making a pause until these shocks truly dissipate. 
• In contrast, we lose substantially by lowering the target rate at a moment when core inflation persists and non-core inflation increases. With these actions we are giving the wrong impression of being less committed to the  primary mandate. 
• We revised our inflation forecasts upward once more, but they are still far below market expectations.
• These expectations do not suggest  that the target will be attained in 2027, and such  target is further compromised by lowering the  reference rate.

Borja

• In Mexico, inflation is undergoing an adjustment in relative prices that has exerted pressure on its recent readings. 
• In addition, the escalation of the Middle East conflict has raised oil prices and volatility in financial markets, introducing new risks for inflation and economic activity. 
• In my opinion, there is still limited information to accurately assess the implications of this shock as well as its magnitude and duration. 
• The monetary policy stance has already been adjusted significantly in line with the inflationary outlook prior to this event. 
• Since November 2025, the ex-ante real interest rate has been within the range deemed as neutral and is very close to the central estimate. 
• Although some transmission channels continue displaying restrictive conditions, they partly reflect the lags associated with the previous extended cycle of monetary tightening, as well as the specific shocks attributed to the high uncertainty worldwide. 
• For this reason, I consider that the current level of the reference rate is adequate to more accurately evaluate the evolution of the inflation outlook and the current shock and, thereby, contribute to maintain inflation expectations firmly anchored.