Mexico | Banxico set to deliver another 50bp cut despite signs of slower disinflation

In contrast to the Fed, who held rates unchanged last week, Banxico has room to continue cutting rates. A low exchange rate pass-through and deeper domestic capital markets grant Banxico greater policy independence from the Fed than in the past.

Key points

• Key points:
• The Mexican economy avoided a technical recession in 1Q25, but underlying economic weakness continues to justify further monetary easing.
• Following April's inflation data and three straight 50bp rate cuts, the Board may adopt a less dovish tone in its forward guidance on the pace of future rate moves.
• With no inflation risks stemming from exchange rate developments, Banxico has room to further unwind its still excessively restrictive policy stance.
• The ex-ante real policy rate remains at 5.25%, well above Banxico’s estimated neutral range (1.8-3.6%), justifying another 50bp cut this week.
• But forward guidance may become slightly less dovish, reflecting both stronger-than-expected inflation and the likely upward revisions to Banxico’s inflation forecasts.

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