MNI Banxico Preview – Mar 2025: 50bp Cut, Focus On Guidance

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Executive Summary

• Banxico is widely expected to deliver another 50bp policy rate cut to 9.00% on Thursday, amid weak economic activity and moderating inflation pressures.
• This would be the second consecutive 50bp move and recent peso resilience should bolster the central bank's confidence in its decision.
• The Bank is likely to keep the door open to further easing ahead, while remaining cautious given the uncertain external backdrop. The vote split will remain in focus given Deputy Governor Heath's vote for a smaller 25bp reduction last month.

Despite the uncertain external backdrop, domestic macro developments, especially the slowdown in economic activity keep the door open for another 50bp policy rate cut this week. In the fourth quarter, real GDP fell by 0.6% q/q, bringing annual growth down to +0.5% y/y, from 1.7%, the slowest pace since the pandemic period. For the full year, real GDP rose by just 1.5%, the slowest pace for four years, down from 3.3% in 2023.

Since then, latest monthly activity data suggest that the economic slowdown continued into the start of this year, with industrial production falling m/m for a fourth consecutive month in January, the manufacturing PMI dropping further below 50 in February and same-store sales also contracting last month. Overall, economic activity fell by 0.2% m/m in January, leaving annual growth at -0.1% y/y. As a result, analysts have continued to pare their GDP growth forecasts, with the economy expected to grow by just 0.6% this year and 1.7% in 2026.