Banxico Holds Rate at 11% as Middle East Risks Lift Inflation Outlook

Banxico minutes released on May 21 flagged the Middle East conflict as an upside risk to inflation through supply disruptions and higher energy prices, prompting the board to keep the key rate unchanged at 11.00%. Markets responded by pushing back expectations for the first cut. The decision follows Moody’s downgrade of Mexico’s sovereign rating to Baa3 from Baa2 on May 20, which cited weakening fiscal strength and continued support for Pemex, raising risk premia on Mexican debt and adding pressure on the peso.