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

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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