Banxico: Early May cut and cautious path – Rabobank

Rabobank strategists Molly Schwartz and Christian Lawrence expect Banxico to deliver one more 25bp rate cut in May 2026, bringing the policy rate to 6.50% by year-end. They highlight that the balance of risks for Mexican growth is skewed to the downside, while inflation is being driven by temporary non-core shocks. The risk to their Banxico rate forecast is tilted toward no further easing.

Rabobank pulls forward final rate cut

"Given the recent Minutes published by Banxico, we are moving our one 25bp cut from Banxico from the June meeting to the upcoming May meeting. We still see the year end rate at 6.50%. We will note that Banxico’s most recent meeting occurred before the CPI inflation print for March was released."

"Against this backdrop, the Governing Board decided by majority to cut the target overnight interbank rate by 25 basis points to 6.75%, continuing the easing cycle. The majority judged that the policy stance remained restrictive despite cumulative cuts, and appropriate given the combination of weak economic activity, persistent slack, and inflation pressures largely driven by transitory relative-price shocks. The Board emphasized that monetary policy is well positioned to prevent second-round effects while allowing for gradual normalization, and that future decisions"

"will depend on incoming data and evolving external conditions, especially developments related to the Middle East conflict."

"Looking ahead, depending on the evolution of macroeconomic and financial conditions, the Board will evaluate the appropriateness and timing for an additional reference rate cut. It will take into account the effects of all determinants of inflation and will monitor the evolution of external conditions. Actions will be implemented in such a way that the reference rate remains consistent at all times with the trajectory needed to enable an orderly and sustained convergence of headline inflation to the 3% target during the forecast period."

"Given this environment and the bias of the majority of the Board in favor of focusing on the deteriorating economic environment and the willingness to look through the short term effects of inflation, we have adjusted our forecast for the Banxico rate path this year and now see the Bank cutting rates by 25bp at the next meeting on May 7, suggesting a terminal rate of 6.50%. The risk to our forecast is skewed in favor of no cuts."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)