Banco de México is expanding its use of bond-market tools to ensure stable funding conditions as the central bank navigates a tricky combination of lower interest rates, sluggish growth, and a peso that needs careful handling.
The central bank’s liquidity operations center on government securities, employing a toolkit that includes outright purchases, repurchase agreements, term repos, and open-market operations designed to steer the overnight interbank funding rate toward its target. During periods of acute market stress, Banxico has deployed extraordinary measures like government securities term repos and debt exchanges reaching up to MXN 100 billion.
Rate cuts and a growth problem
Banxico cut its benchmark interest rate by 25 basis points to 6.50% in May 2026, a decision widely interpreted as signaling the tail end of the current easing cycle. Inflation has been moderating, which gave policymakers room to move.
Mexico’s projected GDP growth for 2026 sits between 1.1% and 1.6%.
