Mexico | Banxico to deliver one last rate cut before moving to the sidelines

Summary

At this stage, the Board will likely refocus on the risks associated with the persistence of core inflation—particularly in services—and on the temporary inflation shock expected in early 2026, despite the significant weakness of the economy and the strength of the MXN.

Key points

• Key points:
• Last week, the Fed delivered a third consecutive 25bp rate cut, to 3.50-3.75%, and signaled it will likely pause rate cuts at its next meeting in late January.
• In Mexico, recent data continue to point to a marked weakening in domestic demand, which offsets the boost from a narrowing trade deficit.
• At 3.8%, headline inflation remained within Banxico’s variability range for five straight months through November, but is set to face a one-off shock early next year.
• Financial conditions have remained supportive, despite higher government bond yields, as the peso has continued to appreciate amid historically low volatility.
• We expect Banxico to deliver another 25bp rate cut at this meeting, bringing the policy rate to 7.00%, while also conveying more limited room for further easing.

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