Mexico | Banxico signals March is too soon to resume rate cuts

Summary

We believe it will still have scope to resume gradual rate cuts later this year, as both weak domestic demand and the continued strength of the peso should help contain inflationary pressures going forward.

Key points

• Key points:
• The Board unanimously decided to keep the policy rate unchanged at 7.00%, signaling that demand-side pressures are not a key driver behind its policy assessment.
• The decision was underpinned by upward revisions to Banxico’s inflation forecasts, pushing the convergence to the 3.00% target back to 2Q27.
• Banxico’s updated core inflation path now matches our forecasts for the first half of the year, while they turned less optimistic on non-core inflation over this period.
• A hawkish tweak to the forward guidance narrows the scope for near-term easing and reinforces our view that March would be too soon to resume the easing cycle.
• We continue to expect Banxico to remain on hold in the coming meetings, as it assesses the effects of the temporary shocks to inflation from recent fiscal adjustments.

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