MNI BANXICO WATCH: Easing Pause Expected, Focus on Duration

The Central Bank of Mexico is expected to pause its easing cycle Thursday, keeping the overnight interbank rate unchanged at 7.00% as signaled after having cut borrowing costs at every meeting in 2025.

Analysts will be examining the decision statement for clues as to how long the pause will last and how much room Banxico will have to cut rates through the end of 2026.

Banxico cut its overnight interbank interest rate by 25 basis points to 7.00% in December, as expected. The board did not signal a cut at the next meeting as it had done in previous meetings and instead said it would "evaluate the timing for additional reference rate adjustments."

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Deputy Governor Gabriel Cuadra told MNI in an interview last month that Banxico needs more time to assess incoming data before continuing to ease policy and will pause rate cuts at its February meeting, adding that in his view the bottom of the cycle is not far off. (See MNI INTERVIEW: Banxico To Pause Easing Next Meeting - Cuadra)

However, former Deputy Governor Manuel Sanchez said that the central bank could soon cut again if the inflationary impact from tax increases and tariffs turns out to be limited. (See MNI INTERVIEW: Banxico To Make A Short Easing Pause - Sanchez)

In another interview, former Banxico director and advisor Federico Rubli Kaiser said the board might deliver at most three 25-basis-point cuts this year depending on how inflation evolves. (See MNI INTERVIEW: Banxico To Pause, Cycle Low Depends On Prices)

Mexico's inflation was 3.69% in December, down from 3.80% in November and ending 2025 within the 1-percentage-point variance range of Banxico's 3% target. Core inflation was 4.33%, down from 4.43% the previous month.

Recent progress in bringing inflation closer to the 3% target was the main reason behind the central bank’s decision to cut rates aggressively in 2025, but the resilience core inflation and uncertainty about the effects of tax increases and the external environment led the board to signal a pause.

After November's decision, the ex-ante real rate entered the board’s estimated neutral rate range of 1.8% to 3.6% and is approaching the midpoint of 2.7%.