Bank Profits, Interest Rates & the Economic Slowdown

ByArturo Huerta González

This article by Arturo Huerta González originally appeared in the May 5, 2026 issue of La Jornada de Oriente, the Puebla edition of La Jornada, Mexico’s premier left wing daily newspaper. The views expressed in this article are the authors’ own and do not necessarily reflect those of Mexico Solidarity Media or the Mexico Solidarity Project.

In the first quarter of 2026, HSBC bank’s profits increased by 52% compared to the last quarter of 2025. Santander bank’s profits increased by 34.3% compared to the same period last year, and their increase compared to the fourth quarter of 2025 was 20.5%.

The Mexican Stock Exchange (BMV) grew by almost 30% in 2025 and by 8.6% in the first four months of 2026. Grupo Bimbo reported that its profits in the first quarter grew by 32.3% year-over-year. The Tax Administration Service (SAT) reported that revenues from the Special Tax on Production and Services (IEPS) grew by 24.3% in the first quarter. One wonders how it is possible for the profits of banks and large corporations to grow, and for the BMV and tax revenue to increase far more than the decline in economic activity. In the first quarter of 2026, GDP decreased by 0.8% compared to the first quarter of 2025 (October-December), and compared to the first quarter of the previous year, it increased by only 0.2%. This reflects that the prevailing economic policy favors the banking and financial sector and is detrimental to economic growth and employment, in addition to the increase in revenue from the IEPS, which has affected the growth of demand and economic activity.

On April 30, 2026, the Secretary of Finance stated that “during the first quarter of 2026, the Mexican economy moderated its growth rate, influenced by significant changes in U.S. trade policy and the conflict in the Middle East.” No government acknowledges that the country’s economic problems are a result of the policies it implements; they always attribute economic contraction to external factors. It should be noted that the problems stemming from the Middle East will manifest themselves in the national economy, especially starting in the second quarter of this year, and that the review of the USMCA will begin to have an impact in the second half of the year. Furthermore, the economic slowdown is primarily explained by the high interest rate, the appreciation of the exchange rate (which makes imports cheaper, displacing domestic production), along with the budget cuts implemented by the Finance Secretariat to achieve a primary surplus (which excludes debt service payments).

On April 29, 2026, the international rating agency Fitch Ratings questioned Banxico’s decision to lower the interest rate from 7% to 6.75% on March 26, 2026. Fitch stated that continued interest rate cuts would erode the institution’s credibility, given its failure to meet the 3% inflation target. The agency noted that “the inflation target has become less of a priority, with more emphasis placed on growth, so monetary policy is no longer contractionary… and if it continues its policy of reducing rates, this could indeed damage its credibility, evidenced by an increase in inflation expectations.” Fitch Ratings opposes the interest rate cuts, arguing that rating agencies respond to the interests of banking and financial capital and therefore favor maintaining high interest rates, as they profit from them, even though this policy has not yielded the desired results of lowering inflation to the 3% target. If Banxico lowered the interest rate, it’s because some members of the Governing Board are beginning to realize that high interest rates won’t bring down inflation. Hence, Deputy Governor Mejía Castelazo stated on April 29, 2026, that “maintaining excessively high rates for too long can also lead to a less orderly adjustment of the economy, and that not adjusting the rate would also have entailed a risk.” He indicated that he made the decision to support the interest rate reduction because he considered it “consistent with the disinflationary process, with the cyclical phase of the economy.” This reflects the recognition that boosting economic growth is necessary to lower inflation, and therefore, high interest rates, which contract investment and supply and fail to reduce inflation, and which only benefit the banking sector, cannot continue.

High interest rates will not counteract the shortages and price increases stemming from the war in the Middle East. Stimulating domestic investment growth is needed to boost the production of gasoline, fertilizers, gas, and food. This requires low interest rates, a competitive exchange rate, and increased investment and public spending to reduce dependence on foreign sources. In other words, a change is needed in the prevailing economic policy, which has undermined the country’s endogenous conditions for capital accumulation, leading to stagnation and dependence on imports and capital inflows, and placing us in a highly vulnerable position at the mercy of international capital.