MNI INTERVIEW: Banxico Likely To Extend Easing Pause - Gomez

The Central Bank of Mexico is likely to extend the pause in its easing and might hold its policy rate at 7.00% again in March, Universidad Panamericana professor Eugenio Gomez Alatorre told MNI, adding that there is not much room for further cuts.

"I do not think the rate will be cut at the next meeting. Headline inflation increased in January. Core inflation has been rising for several months and reached 4.5%," Gomez, a former deputy director of macroeconomic analysis at the Ministry of Finance and Public Credit, said in an interview.

"Headline inflation is likely to move higher in the coming months. Banxico should not lower rates in this context," he added. (See MNI POLICY: Banxico Likely On Hold In H1, Little Room For Cuts)

Banxico’s board unanimously kept the overnight interbank rate at 7.00% this month, as expected, and said it "will evaluate additional reference rate adjustments." The decision came after 12 consecutive rate cuts.

BANXICO'S CREDIBILITY

"It seems to me that the decision was influenced by the criticism the central bank has recently received from economic analysts. Some economic research departments recently questioned the central bank’s credibility for cutting rates while inflation is not under control and core inflation is rising," Gomez said.

"I think this may have led the board to shift its stance unanimously. In my view, it is the right decision, for the first time in a long time. I believe the recent uptick in inflation will lead to a prolonged and unanimous pause at the next meeting. Further ahead, there could be split decisions."

The inflation backdrop and Banxico’s credibility challenges should lead to a prolonged pause in rate cuts, he reiterated. "However, the board seems eager to continue cutting rates. I think there could be one or two additional cuts in 2026," the former official said.

Banxico revised its inflation forecast and now expects convergence to the 3% target only in the second quarter of 2027, whereas it previously projected the third quarter of 2026.

"Banxico has been doing the same thing for years. It publishes an inflation forecast that reaches the target within 18 to 24 months and revises it each time it releases a new decision or quarterly report. Why should I believe it now? The central bank’s forecasts have been wrong for years, and this time will not be the exception," Gomez said.

Analysts expect inflation of 3.9% in 2026 and 3.8% in 2027, which shows there is no confidence in Banxico’s forecasts, he added.