Mexico | Close call, but we expect Banxico to stick to its guidance and ease this week

Summary

If inflation expectations remain well anchored, a pause driven by a supply-driven shock could prove counterproductive given policy lags, potentially leaving the stance tighter than desired once these pressures dissipate.

Key points

• Key points:
• Last week, the Fed left rates unchanged at 3.50-3.75% and signaled limited scope for near-term easing amid increased geopolitical uncertainty.
• In Mexico, 2025 GDP growth was revised slightly higher, confirming a somewhat stronger second half of the year, though underlying demand dynamics remain weak.
• Banxico is likely to stress increased risks amid higher oil prices, but the supply-side nature of recent shocks should not derail its plans to move rates further into neutral.
• Banxico’s minutes showed a clear dovish bias, paving the way for a rate cut this week, before long-term yields moved higher amid rising global risk premia.
• We expect Banxico to resume the easing cycle this week with a 25bp rate cut, to 6.75%, although we see this as a close call (60–40).

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