Mexico | Banxico cuts, keeps easing bias and signals cycle nearing end

Summary

Looking ahead, we think the timing of the final rate cut will depend on external conditions. Under our baseline of a short-lived conflict, and with Banxico’s test for second-round effects from this year’s fiscal changes now met, most Board members may prefer to wrap up the easing cycle and deliver a final 25bp cut in May.

Key points

• Key points:
• Banxico cut the policy rate by 25 bps to 6.75% as we expected, acknowledging soft activity and downside risks tied to the Middle East conflict.
• The decision came alongside a modest upward revision to its inflation forecasts, but Banxico does not appear overly concerned about the outlook.
• It kept an easing bias but clearly indicated that the easing cycle is near its end, with only one additional 25bp cut remaining to bring the policy rate to 6.50%.
• Forward guidance states that depending on the evolution of conditions, “the Board will evaluate the appropriateness and timing for an additional reference rate cut.”
• The outcome of this meeting reinforced our long-held view that the easing cycle will end at 6.50%, with the timing of the final cut dependent on the duration of the conflict.

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