MNI BANXICO WATCH: More Cuts Signaled, With Hawkish Caveats

The Central Bank of Mexico indicated Thursday that it intends to continue lowering interest rates but offered no clear timeline for its next move, with some hawkish hints in the statement suggesting the pause its easing cycle could last for some time. 

"Looking ahead, the Board will evaluate additional reference rate adjustments. It will take into account the effects of all determinants of inflation," the statement said.

Banxico's inflation forecast revision presented a hawkish twist with the projection that headline inflation will only converge to the 3% target in the second quarter of 2027. At the last meeting, the expectation was the third quarter of 2026.

In addition, the central bank now expects inflation to climb 3.5% this year, up from 3.0% in December. The worsening outlook could prompt a more cautious stance from the board.

"The forecast revision incorporates the effects anticipated from the fiscal adjustments, although the comprehensive assessment of the latter will require additional information as it becomes available," the board said.  (See MNI POLICY: Banxico Likely On Hold In H1, Little Room For Cuts)

SERVICE INFLATION RESILIENCE

The shift also reflects a more gradual decline in services inflation than expected, according to the statement. "The risks for the trajectory of inflation are considered closer to balance, but they remain biased to the upside. The changes in economic policy by the US administration continue adding uncertainty to the forecasts. Their effects could imply inflationary pressures on both sides of the balance."

The pause came after 12 consecutive cuts to borrowing costs, taking the rate from 11.00% to 7.00%.

On growth, Banxico highlighted that "after having fallen during the third quarter of 2025, economic activity expanded in the fourth quarter of 2025," despite downward risks.

The document noted that between November 2025 and the first fortnight of January 2026, headline inflation decreased from 3.80 to 3.77%.

"This result was explained mainly by a decline in non-core inflation, which was partially compensated by core inflation, which shifted from 4.43 to 4.47% and thus increased with respect to the 4.33% observed in December 2025. Headline inflation expectations for the end of 2026 rose while those for longer terms remained relatively stable at levels above target," the statement noted.