Mexico | GDP contraction and softer core inflation bolster the case for a final cut

Summary

We expect Banxico to wrap up the easing cycle this week with a 25bp rate cut, taking the rate to 6.50%, followed by a prolonged pause lasting at least through the rest of the year; the Board will likely convey that it will take some time to assess the cumulative effects of the easing cycle.

Key points

• Key points:
• Last week, the Fed left rates unchanged at 3.50-3.75% and paved the way for a potential removal of its easing bias should higher energy prices persist.
• In Mexico, 1Q26 GDP fell 0.8% q/q, reinforcing Banxico’s case for completing the easing cycle this week, bringing the policy rate closer to neutral without delay.
• The most recent biweekly core CPI figure favors Banxico’s assessment that the uptick in inflation is driven by one-off supply shocks rather than demand-side pressures.
• Weak domestic demand and the orderly behavior of the peso will likely lead Banxico to deliver the final rate cut despite persistent global uncertainty.
• As core inflation converges toward 3.5% and the Fed potentially easing, Banxico could consider additional rate cuts next year, bringing the policy rate closer to 6%.

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