The Bank of Mexico held its benchmark interest rate at 6.5 per cent on Thursday, a unanimous decision that confirms the end of a nearly two-year easing cycle. The pause, widely anticipated by markets, follows back-to-back quarter-point cuts in February and May. Policymakers judged the current stance as appropriate to consolidate disinflation, noting that the annual headline rate fell to 3.55 per cent in early June, though services inflation ticked higher, partly linked to World Cup-related tourism.

The decision comes against a backdrop of faltering growth. Mexico’s economy contracted 0.6 per cent in the first quarter, and the central bank slashed its 2026 GDP forecast to 1.1 per cent from 1.6 per cent. Subgovernor Gabriel Cuadra described the balance as ‘delicate’ in a recent interview, arguing the current rate should be maintained. Analysts in Mexico City point to sticky core inflation—driven by services—and external risks, including the upcoming review of the USMCA trade pact and potential Federal Reserve tightening, as factors limiting room for further cuts. Some private-sector economists now assign a higher probability to the next move being a rate increase, though not in the near term.

Across the Atlantic, the European Central Bank moved in the opposite direction on 11 June, raising its main refinancing rate to 2.4 per cent after a year-long hold. Eurozone inflation accelerated to 3 per cent in April, well above the 2 per cent target, fuelled by higher energy costs linked to the substitution of Russian gas with pricier LNG and renewed Middle East tensions. ECB President Christine Lagarde acknowledged the economy is ‘not in a good place’ but argued the hike is necessary to prevent second-round effects on wages and prices. Several prominent economists, including Olivier Blanchard and Paul De Grauwe, have argued that raising rates in response to supply-driven inflation is likely to dampen demand and employment without addressing the root causes.

Both institutions face a common challenge: inflation that is increasingly shaped by geopolitical and supply-side forces rather than excess domestic demand. In Mexico, the central bank’s forward guidance omitted an explicit commitment to hold rates for a ‘prolonged period,’ leaving policy data-dependent. Markets will watch the next Banxico meeting for any shift in tone, while in Frankfurt, investors are pricing in at least one more rate increase before year-end, even as the growth outlook darkens.