MNI Banxico Preview - Feb'25: Board Set To Step Up Easing Pace

Executive Summary

• Consensus has been building towards Banxico accelerating the easing pace in February, with the committee expected to cut the key rate by 50bp to 9.50%. This would be in line with prior dovish rhetoric in the December statement, which indicated that larger downward adjustments could be considered in some meetings.
• Supporting a bolder cut is the continued progress lower for headline inflation, weaker-than-expected domestic GDP data and the loss of one of the most hawkish voices of the committee.
• Amid the heightened uncertainty related to US tariffs and the associated MXN sensitivity, analysts had been split over the potential Banxico response this month. However, the latest tariff delay and more optimistic discussions between US and Mexican administrations leaves a bolder rate cut as the most likely move at this juncture.

Click to view the full preview: MNI Banxico Preview - February 2025.pdf

After the tariff-induced volatility early this week, USDMXN appears to have settled around 20.50, consolidating the sharp reversal seen on Monday, that saw the pair reverse ~4.5% from the fresh cycle highs ~21.30, printed earlier in the session. Those initial highs came after President Trump announced over the weekend that he would impose 25% tariffs on Mexican imports, effective this week. However, there was a substantial reprieve for Mexican assets later on Monday, when it was announced that the tariff implementation had been pushed back to March 1. While only delayed by a month, the multiple accords with the US administration and working groups on trade, security and migration provided a much more supportive backdrop and should foster hopes of a broader trade agreement ahead. President Trump later said that “we will have a big negotiation with Mexico”.

Providing an additional peso tailwind were comments from Finance Minister Rogelio Ramirez de la O, who reassured markets that both the finance ministry and Banxico are in a strong position to deal with the rising macroeconomic risks. For USDMXN, short-term positioning might leave the downside vulnerable, with key support having been defined at 20.1343, the Jan 24 low. On the other hand, with the uncertainty surrounding a potential trade war escalation, the short-term MXN trajectory is likely to remain volatile.