Nonetheless, they reaffirmed that they will achieve the 3% target by the end of 2026. Deputy Governor Jonathan Heath warns of a lack of credibility in the market. Are they facing a credibility crisis? Underlying inflation continues to be a central concern for both the central bank and analysts, as it remains above the bank's target range. In its last conference of the year, the Bank of Mexico's (Banxico) governing board estimated that the economy will stagnate by the end of the year, with a slightly more pessimistic outlook than the one they foresaw in August, accompanied by a deceleration in inflation, albeit with ongoing pressures. According to the central bank's quarterly report, the economy will grow in an estimated range of 0.1% to 0.5% this year, reducing the August point forecast from 0.6%, but ruling out a recessionary scenario. For the next year, they estimate that the Gross Domestic Product (GDP) will show a slight recovery of 1.1%—in a range between 0.4% and 1.8%—and they added their point forecast for 2027 for the first time at 2%. This year's adjustment comes after the 0.3% contraction observed in the third quarter on a quarterly basis, as well as acknowledging several pressures on the economy towards the end of the year, highlighting the cooling of the labor market. The central bank warns of risks related to trade uncertainty with the United States, lower growth in the U.S., volatility in financial markets, escalation of geopolitical conflicts, and weather phenomena. Regarding the inflationary outlook, the governing board estimates that the annual rate will be at 3.5% by the end of 2025, but highlights that they see a more challenging scenario for the underlying component, which determines the trend in the medium and long term. For this item, the central bank made a slight upward adjustment, moving from 3.7% in August to 4.1% for the end of the year. Deputy Governor Jonathan Heath has warned that this could damage credibility. Questioned on this issue, the team led by Victoria Rodríguez defended the strategy, assuring it is 'consistent' with the deceleration in general inflation, the slack in the economy, and other more flexible monetary policy stances worldwide. 'We have achieved a sustained disinflation process, as well as anchoring long-term expectations, which shows confidence in this central institute,' they stated. Deputy Governors Omar Mejía, Galia Borja, and Gabriel Cuadra agreed and added that other metrics have been incorporated to have a more complete picture, emphasizing that the rate was kept at a restrictive level for three years to ensure the downward trend in prices. However, Heath had a more critical response, stating that the central bank has only achieved that objective on a few exceptions throughout its history, which he considers the reason for the lack of credibility. 'It is very difficult, but we must do everything we can to bring inflation down to 3% and not give up,' said Heath. The message on which all agreed is that the board 'is committed to our mandate and the inflation target,' which they assured is 3%. 'How to break that lack of credibility?' In its latest reading corresponding to the first half of November, it stood at 4.32%, and according to the central bank's forecast, it will remain above that level through December. This scenario has raised doubts about Banxico's interest rate cut cycle, which is expected to continue this December with another 25-basis-point adjustment, leaving it at 7%. In that sense, they also emphasized that there is 'no tolerance or indifference' to current levels.
