MNI INTERVIEW: Banxico To Cut 3 Times, March Possible-Campos

The Central Bank of Mexico is likely to deliver three 25-basis-point cuts this year, probably starting in May but potentially as early as March, bringing the policy rate to 6.25%, Deutsche Bank’s Chief Economist for Latin America Francisco Campos, also a former Banxico economist, told MNI.

"From the minutes, it looks like a majority is already open to contemplating resuming cuts as early as March. The data so far have been supportive of that scenario. While inflation has shown a bit of a hump, headline inflation has remained below 4%," Campos said in an interview.

"We have not officially changed our view, and we are still about four weeks away from the next decision, in the last week of March. For now, we maintain our baseline scenario of a May cut, but we are agnostic."

If board members focus on more favorable developments and judge that the impact of the new taxes and tariffs on countries without trade agreements has moderated -- with some of the blow cushioned and headline inflation remaining below 4% -- that could support a March cut, he said. 

If the data continue to align with the majority’s view, then March is definitely on the table, Campos added. "It is a very conceivable scenario. The bottom line is that the March meeting is more ‘live’ than we had previously anticipated."

THREE CUTS 

He believes that once Banxico resumes cutting, it will likely deliver three consecutive moves, bringing the rate to 6.25%. (See MNI INTERVIEW: Too Early To See Core Downtrend-Banxico's Heath)

"Our view is for consecutive 25-basis-point cuts to 6.25%. That scenario also assumes the Fed delivers only one cut. Stopping at 6.25% would place policy toward the lower end of the neutral range while preserving a spread of around 300 basis points relative to the Fed, which seems consistent with a continuation of the easing cycle," he said.

Non-food core component performed well, likely supported by Mexican peso appreciation, while services inflation remained stable, helping mitigate the overall impact of the tax and tariff shock on core inflation, Campos added.

LIMITED WINDOW  

However, the window for easing this year is limited, Campos stressed. "In my view, the latest they could cut would be June. If they are unable to cut by then, the window becomes very narrow, because by the summer you will start to see price pressures related to the World Cup."

Banxico revised its inflation forecast and now expects convergence to the 3% target, which has a variability band of one percentage point above and below, only in the second quarter of 2027, whereas it previously projected the third quarter of 2026.

He emphasized that inflation convergence to the 3% target has rarely materialized on a sustained basis due to structural factors, including fiscal dynamics, labor cost pressures and institutional reforms. "As a result, inflation might remain closer to the upper half of the target range."

In practice, the de facto target appears to be somewhere between 3% and 4%, he said. "As long as inflation stays within that range, the board seems comfortable maintaining a neutral stance without the need to re-tighten. Their revealed preference suggests they are not strictly targeting 3%," Campos noted. 

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.