Unstable peso, drought-related inflation, and caution at the Mexican Stock Exchange

The Mexican economy is navigating a turbulent week. The peso's exchange rate against the dollar has shown marked volatility, influenced in part by the uncertainty surrounding the Judicial Reform. Adding to this situation is the serious threat of drought, which could trigger inflation for basic foodstuffs, while the Mexican Stock Exchange is operating cautiously.

The USD/MXN exchange rate has seen significant movements throughout the week, closing today, June 13, 2025, at an average of 19.0490 pesos per dollar in the interbank markets. Data from the Bank of Mexico (Banxico) indicated a FIX exchange rate of 19.0518 pesos per dollar on June 10, representing a slight appreciation compared to the 19.2638 pesos recorded the week before, but still considerably above the 20.7862 pesos recorded at the close of 2024. In exchange houses along the northern border, the US dollar was sold for as much as 20.00 pesos. Financial analysts attribute part of this recent depreciation and volatility to the uncertainty generated in the markets by the discussion and eventual implementation of the reform of the Judicial Branch.

The Mexican Stock Exchange's main indicator, the S&P/BMV IPC, closed the June 12, 2025, session at 57,829.74 points, representing a marginal gain of 0.11%. However, the trading week has been marked by ups and downs, and the IPC's close in May at 57,841.69 points reflects a cautious mood among investors, who are weighing both the domestic political landscape and global economic factors.

The persistent and severe drought affecting much of the country is emerging as one of the greatest risks to economic and social stability. Projections for the agricultural sector are worrying, especially for corn production, a mainstay of the Mexican diet. A drastic drop in harvests is estimated in key states such as Sinaloa for the 2025 cycle, falling from 3.2 million tons in 2024 to only a projected 1.9 million. This decrease in domestic supply could exert strong upward pressure on the price of corn and, consequently, drive the price of a kilogram of tortilla up to 32 pesos. This scenario is exacerbated by the rising costs of other agricultural and energy inputs, such as gas and electricity.

The severity of the situation has led state governments, such as Querétaro, to formally declare a state of emergency due to drought. For its part, the Ministry of Agriculture and Rural Development (SADER) has begun implementing extraordinary support programs for affected farmers and ranchers in various regions of the country. Drought is not just a climate issue; it is a major economic and social risk factor, with the potential to generate inflation, affect food security, and provoke social tensions.

"A drastic reduction in corn harvests in Sinaloa is estimated, dropping from 3.2 million tons in 2024 to just 1.9 million in 2025." This figure illustrates the magnitude of the agricultural challenge.

Despite this complex domestic landscape, Mexico remains an attractive destination for foreign investment, driven in part by the nearshoring trend. Recently, in Nuevo León, Governor Samuel García announced a significant investment by Hengli de México, which will allocate an initial $200 million for a new plant in Santa Catarina. The state governor emphasized that the state has managed to attract $74 billion in Foreign Direct Investment (FDI) in the last three years.

However, for Mexico to fully capitalize on the historic opportunity represented by nearshoring, it is crucial to address internal obstacles. The uncertainty generated by structural reforms such as the judicial reform, potential labor instability—with risks of strikes in key sectors such as the automotive industry—and persistent challenges in basic infrastructure (water and energy supply) could hinder investment momentum and the country's competitiveness vis-à-vis other nations, especially those in Asia that are also seeking to attract capital.

The Mexican economy is facing a "perfect storm" where exchange rate volatility and food inflation threaten purchasing power, while nearshoring opportunities are tempered by internal structural challenges. Managing these factors will be crucial for the well-being of the population and economic development in the coming months.