MNI INTERVIEW: Banxico To Resume Easing Cycle In March - Gomez

The Central Bank of Mexico is likely to resume its easing cycle in March with a 25-basis-point cut to 6.75% and could deliver additional cuts of the same size, bringing the rate to 6.25% by June, Victor Gomez Ayala, a former official at Mexico’s Ministry of Finance, told MNI.

“After assessing the comments made by different board members in the minutes of the most recent decision, we believe there will be a majority decision, possibly 4-1, in favor of resuming the easing cycle as soon as the March meeting,” Gomez, who is now chief economist at Finamex and founder of Daat Analytics, said in an interview.

“Our expectation is that starting in March, the central bank will resume the easing cycle toward a level of 6.25%, with consecutive rate cuts at the March, May and June meetings, bringing the policy rate to 6.25%. After that, the board would wait to see how the USMCA review process evolves,” he added.

Further, depending on which scenario materializes, he said Banxico would assess whether to continue the easing cycle once the uncertainty surrounding the agreement review dissipates. (See MNI INTERVIEW: Too Early To See Core Downtrend-Banxico's Heath)

NEW TAX IMPACTS TEMPORARY

In January, Mexico raised the Special Tax on Production and Services (IEPS) in an effort to curb consumption and boost revenue, and imposed tariffs on imports from countries with which it does not have trade agreements, particularly China.

The former economic adviser to the Deputy Minister of Revenue highlighted that there is evidence the implementation of the IEPS was concentrated in certain CPI categories and therefore most likely reflects a tax impact limited to specific items rather than a broader relative price adjustment, which supports a March rate cut.

He believes the impact of the tariffs Mexico imposed on countries without a trade agreement remains very limited. “Thus, based on the data and likely in the view of the majority of board members, the tariff-related effect appears fairly moderate and does not require extending the current pause for a prolonged period,” Gomez said.

PAUSE AMID UNCERTAINTY 

He noted that Banxico’s most recent decision to pause its easing cycle at 7.00% last month came amid significant uncertainty regarding the impact that various fiscal measures may have on the price-formation process.

“For the board, it was important to assess how these effects would unfold and how they could affect not only specific components of the CPI basket, but also indirectly influence other items. Therefore, its unanimous stance sought to convey a consensual message about the importance of understanding the nature and impact of these measures before continuing the easing cycle.”

Gomez stressed that Banxico would take the ex-ante real rate toward the lower end of the neutral range, estimated between 1.9% and 2.7%, with a 6.25% policy rate consistent with a level slightly below the midpoint based on 12-month inflation expectations.

While 6% would not necessarily be stimulative — as that would imply a real rate below 1.9% — he said additional cuts could be considered toward 2027 once the impact of taxes and tariffs fades and if inflation risks continue to tilt to the downside.