Publications

The Board noted that “economic activity exhibited sluggishness at the beginning of the third quarter of 2025,” in line with the July’s IGAE print released yesterday, which showed a broad-based 0.9% m/m contraction across all major sectors.

We expect Banxico to deliver a 25bp rate cut and to signal that the easing cycle still has room to continue. We think further easing toward at least the midpoint neutral rate estimate remains warranted amid a weak demand outlook.

Lingering challenges for the growth outlook should maintain Banxico’s confidence that monetary policy can (and should) continue to ease. We think Banxico will remain confident in further services disinflation ahead and will proceed with a 25bp rate cut this week.

The upcoming minutes will be key to gauge to what extent most members remain focused on the weak growth outlook and how confident they are that the current degree of monetary restriction remains inconsistent with prevailing conditions and risks.

A key indication that Banxico's primary concern has shifted from inflation to growth is its acknowledgment, for the first time, that “since the inflationary episode has been left behind,” the fight against inflation is at a new stage.

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.

Banxico could keep the door open to a third 50bp cut in May before slowing down to more cautious 25bp adjustments. This would strengthen our expectation that Banxico will bring down the policy rate to a below-consensus 7.5% by the end of this year.