MNI BANXICO WATCH: 25BP Cut Seen, War Raises Longer Pause Odds

The Central Bank of Mexico is expected to cut 25 basis points to 6.75% on Thursday, though the war in Iran has prompted some analysts to bet on a longer pause.

Banxico decided to hold borrowing costs at 7.00% at its last meeting due to core inflation resilience and said it would evaluate additional cuts. Over the past month, board members delivered dovish public comments ahead of the conflict.

Deputy Governor Jonathan Heath told MNI in an interview that it is too early to confirm a clear downward trajectory in Mexico’s core inflation, adding that it is also premature to conclude that recently implemented taxes and tariffs will not generate second-round effects. (See MNI INTERVIEW: Too Early To See Core Downtrend-Banxico's Heath)

This suggests the decision could be split in the event of a cut, with Heath likely voting for a hold, as he has done several times throughout the easing cycle. Last month’s pause followed 12 consecutive rate cuts.

MORE CUTS EXPECTED

Victor Gomez Ayala, a former official at Mexico’s Ministry of Finance, told MNI Banxico is likely to resume its easing cycle in March with a 25bp cut to 6.75% and could deliver additional cuts of the same size, bringing the rate to 6.25% by June.  (See MNI INTERVIEW: Banxico To Resume Easing Cycle In March - Gomez)

Deutsche Bank’s Chief Economist for Latin America Francisco Campos, also a former Banxico economist, told MNI that the central bank is likely to deliver three 25-basis-point cuts this year, probably starting in May but potentially as early as March. (See MNI INTERVIEW: Banxico To Cut 3 Times, March Possible-Campos)

Mexico's INPC annual inflation was 4.02% in February, above the 3.94% consensus forecast and up from 3.79% in January.

Inflation is now just beyond the upper limit of the 1-percentage-point tolerance band around the central bank’s 3% target. Core inflation was 4.50%, down from 4.52% the previous month.