Mexico | Banxico cuts to 7.00% and signals a pause in the easing cycle

Summary

The Board noted the uncertainty surrounding the inflation shock expected in early 2026 stemming from recently approved fiscal measures, which “are estimated to have a temporary effect, not necessarily proportional, on prices.”

Key points

• Key points:
• Banxico delivered a widely expected 25bp rate cut, to 7.00%, and clearly signaled that the easing cycle is now effectively on hold, though not yet over.
• It modestly revised up its short-term inflation forecasts, while still projecting convergence to the 3.0% target by 3Q26, a timeline that is set to be revised soon.
• The forward guidance clearly signaled a pause in the easing cycle as the room for near-term cuts was exhausted, but also left the door open to further adjustments later.
• We expect Banxico to remain on hold in the coming months, as it assesses the temporary shocks (excise taxes, tariffs on Asian imports) anticipated in early 2026.
• We believe it will still have scope to resume gradual rate cuts later in 2026, ultimately bringing the policy rate closer to the midpoint of the neutral range, around 6.5%.

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