Mexico | Banxico remains focused on growth headwinds, signals another 50bp cut in June

Summary

A key indication that Banxico's primary concern has shifted from inflation to growth is its acknowledgment, for the first time, that “since the inflationary episode has been left behind,” the fight against inflation is at a new stage.

Key points

• Key points:
• Banxico lowered the policy rate by 50 bps to 8.50%, marking the third consecutive cut of this magnitude and thus bringing the cumulative easing this year to 150 bps.
• April’s core goods inflation figures led Banxico to revise its short-term inflation forecasts, but the central bank’s confidence in further disinflation remains intact.
• Core inflation is now projected by the central bank to average 3.9% 2Q25, up from 3.5%, but core inflation is still expected to converge to 3.0% by 2Q26.
• A worsening outlook clouded by concerns about the pace of economic activity appear to be weighing heavily on the Board’s judgment in favor of continued easing.
• If Banxico transitions to a slower 25 bp pace from July onward and cuts at every remaining meeting this year, the policy rate could easily reach 7.00% by year-end.

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