Mexico | Banxico delivered a 50bp cut and left doors open to another same-sized cut in May

Summary

Its confidence in delivering a third big rate cut to keep removing the still very restrictive monetary policy stance as fast as possible will be contingent upon the peso’s orderly trading conditions and the absence of a marked depreciation.

Key points

• Key points:
• Banxico lowered the policy rate by 50 bps to 9.00%, bringing the ex-ante real rate to 5.1%, 150 bps above Banxico’s own 3.6% upper-bound estimate for the neutral rate.
• The statement not only kept a strong dovish tone, but also added some dovish tweaks that signal growing confidence among Board members about the inflation outlook.
• Banxico still estimates that inflation will reach 3.0% at some point in 2026, as opposed to our view that inflation is more likely to hover around 3.5%.
• In a context of rising growth concerns and lesser inflation worries, Banxico left the door wide open to a third straight 50bp cut in May.
• The forward guidance continued to suggest that a string of consecutive rate cuts is likely, supporting our below-consensus 7.5% rate forecast for the end of this year.

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