Publications

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.

Looking ahead, we think the timing of the final rate cut will depend on external conditions. Under our baseline of a short-lived conflict, and with Banxico’s test for second-round effects from this year’s fiscal changes now met, most Board members may prefer to wrap up the easing cycle and deliver a final 25bp cut in May.

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.

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.

The Board noted the uncertainty surrounding the inflation shock expected in early 2026 stemming from recently approved fiscal measures, which “are estimated to have a temporary effect, not necessarily proportional, on prices.”

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.

We think the room to continue easing is unlikely to have been materially affected by the Fed’s more cautious tone from last week, as some Board members have indicated that a narrowing rate spread is not a binding constraint.