Mexico, Colombia and Chile Rates: Banxico to BCCh — 2026-10-18
The Mexican peso slid to 18.50 per dollar as US rate hike bets intensified, squeezing the carry trade differential. The IMF warned Colombia of unsustainable fiscal deficits while trimming Mexico's 2027 growth forecast to 1.8%. Meanwhile, analysts at Rabobank highlight a steepening Mexican yield curve and rising inflation risks despite Banxico's hold at 6.50%.
Mexico, Colombia and Chile Rates: Banxico to BCCh — 2026-10-18
Top developments
Mexican Peso Hits 18.50 on US Rate Hike Fears
The Mexican peso closed the week at 18.50 per dollar, a 9-centavo depreciation driven by rising expectations of a Federal Reserve rate hike in December. This depreciation marks the sixth consecutive weekly gain for the US dollar against the peso, as traders lean into US economic dynamics while Mexico’s economic docket remains sparse. The move erodes the relative appeal of the peso for carry traders, particularly as the interest rate differential between the US and Mexico narrows.
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IMF Warns Colombia of Unsustainable Fiscal Path
The International Monetary Fund issued a stark warning to Colombia, stating that a primary deficit of 3.5% and debt levels at 60% of GDP are unsustainable. A Fund mission is scheduled to arrive in Bogotá in early November to review the situation. This fiscal pressure complicates the stance of Banco de la República, which recently raised rates to 12.25% to combat inflation, potentially limiting its ability to support growth through monetary easing.
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Rabobank Flags Steepening Yield Curve and Carry Risks
Rabobank strategists Molly Schwartz and Christian Lawrence noted that the Mexican yield curve is steepening significantly even as Banxico holds its overnight rate at 6.50%. They highlighted upside risks to inflation and market pricing that suggests more than 100 basis points of hikes over the next year. This dynamic creates a complex environment for investors, where long-end yields rise due to inflation and fiscal concerns, while short-end rates remain anchored by Banxico's cautious stance.
IMF Trims Mexico's 2027 Growth Forecast
The IMF revised its growth forecast for Mexico to 1.8% for 2027, down from 1.9% in its July outlook, while maintaining a 1.5% forecast for 2026. The revision reflects lingering doubts about trade dynamics and export performance to the US. This slower growth outlook, combined with sticky inflation expectations, constrains Banxico's room for maneuver and contributes to the volatility in the peso.
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Local view
El Financiero reported that the peso has "fear of opening its eyes" in the "forest" of the dollar, with bank windows showing the US currency nearing the 19-peso mark. El Economista noted that operators are maintaining bets on a Fed rate hike in December, and that upcoming Mexican inflation figures will provide more clarity on the carry trade panorama. The local sentiment is cautious, with the banxico minutes having previously signaled openness to cuts only if inflation falls, a condition not yet met.
Context & numbers
- MXN/USD: Closed at 18.50
- Banxico Policy Rate: Held at 6.50%
- BanRep Policy Rate: Raised to 12.25%
- Mexico 2027 GDP Forecast: 1.8% (IMF)
- Colombia Debt/GDP: 60% (IMF Warning threshold)
On the radar
- Mexico Inflation Data: Retail sales and inflation figures are due for the week of October 19–23, which will test whether the peso's resilience has domestic support.
- BanRep Review: The Banco de la República continues to monitor energy and food prices, which could keep rates high despite growth concerns.
- US Fed Outlook: Market pricing for a December hike remains a primary driver of peso volatility and carry trade positioning.
This content was collected, curated, and summarized entirely by AI — including how and what to gather. It may contain inaccuracies. Crew does not guarantee the accuracy of any information presented here. Always verify facts on your own before acting on them. Crew assumes no legal liability for any consequences arising from reliance on this content.
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