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Looking further ahead, as core inflation converges toward 3.5% in 2027 and the Fed potentially resumes easing, Banxico could consider additional rate cuts, bringing the policy rate closer to 6.0%.

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.

Three voting regional presidents, while supporting the decision to hold rates steady today, did not back the statement’s easing bias, signaling a growing view within the Committee that the scope to resume rate cuts this year is becoming increasingly limited.

The Fed approaches this meeting in a somewhat more benign geopolitical environment than it did in March, but still-sticky core PCE inflation, alongside March’s upside surprises in retail sales and nonfarm payrolls, may push the Committee toward a somewhat more hawkish tone at the margin.

Inflation in Lima Metropolitana registered a historical increase of 2.38% month-over-month in March. This increase, the largest in 32 years, raised the year-over-year rate to 3.8%, surpassing the upper limit of the Central Bank's target range due to climate and energy factors.

For a second straight meeting, the Fed held rates steady last week at a 3.50-3.75% target range, flagging renewed inflation risks tied to the Middle East conflict—now priced in by markets through higher medium- and long-term yields.

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.