MNI INTERVIEW: Banxico To Pause Easing Next Meeting - Cuadra

The Central Bank of Mexico needs more time to assess incoming data before continuing to ease policy and will pause rate cuts at its February meeting, Deputy Governor Gabriel Cuadra told MNI, adding that in his view the bottom of the cycle is not far off.

"What we have to do going forward, as soon as in the February decision, is adopt a wait-and-see approach. And that implies, from my point of view, pausing the cutting cycle," Cuadra, who started his term as deputy governor in February 2025, said in an interview at his office in Mexico City.

Banxico cut its overnight interbank interest rate by 25 basis points to 7.00% last month, 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."

Cuadra said that Banxico is close to the historical averages for rates and to the midpoint of its range of estimates of the neutral level. "And we no longer have those levels of rates as high as we had a year ago, which is why I believe that we are not that far from the terminal rate," he said.

The nominal policy rate and the ex-ante real rate are not at the atypically high values observed at the beginning of 2025, the deputy governor noted. (See MNI INTERVIEW: Banxico To Pause, Cycle Low Depends On Prices)

INFLATION SHOCKS TEMPORARY

"There is the issue of the excise taxes that will be established this year, and tariffs to goods from countries with which Mexico does not have a trade agreement. In theory, these measures would represent a one-time increase in the price level and also a transitory effect on monthly inflation and on annual inflation," he said.

Monthly inflation, in principle, should increase during the period in which the change in relative prices occurs and afterwards decline, he said. Annual inflation should increase and, due to an arithmetic effect, remain elevated over the course of a year and then dissipate, as has occurred in the past, Cuadra said. 

"I think it will take time to confirm that second-round effects will indeed not occur. We have to monitor, and that takes time," he argued, adding that these new shocks are happening in a context in which core inflation is already above its variability range, which allows 1 percentage point in each direction from the 3% target.

Cuadra said the board will make a complete assessment of the effects that these new shocks may have on the inflation outlook as a whole.

PURSUING 3% TARGET

The deputy governor also stressed that the central bank is aiming to reach inflation of 3%, not just the variability range. 

"The 2% to 4% is a variability interval because there are shocks out the control of the monetary authority that influence inflation in the short run. These effects can influence inflation and can cause volatility. And to reflect that, we have that variability range, which is not a tolerance range."

After cutting 12 times in a row, Banxico's rates differential with the Federal Reserve has tightened.

"It is one factor among many that we take into account. There is no target for the differential. It is not that we have an objective for the differential between Mexico and the United States. It is simply one element among many others that we take into account in our deliberations," he said.