MNI INTERVIEW: Banxico To Stick With 25bp Cuts Pace, No Pause

The Central Bank of Mexico is likely to stick to its pace of 25-basis-point cuts in upcoming meetings, with no pause expected, the former head of Banxico’s industrial sector analysis told MNI, adding that the terminal rate might be around 6.50%. 

"The policy rate is at 7.50% now, with headline inflation already within the target range. Even so, monetary policy remains restrictive, making it highly likely that Banxico will continue with 25bp cuts in its last two meetings of the year, with no short-term pauses expected," Pau Messeguer Gally, who left the central bank earlier this year and is now executive director of economic analysis at Banco Multiva, said in an interview.

Banxico cut rates by 25 basis points to 7.50% last month, with Deputy Governor Jonathan Heath dissenting for a third time, voting to hold at 7.75%. The board said it will continue evaluating “further adjustments” at upcoming meetings.

Messeguer noted that Banxico has aggressively and consistently cut its policy rate throughout 2025, while core inflation has shown no clear trend toward convergence to 3%, remaining above the central bank’s variability range, which allows for a one-percentage-point deviation in either direction.

"In January, headline inflation stood at 3.59% with a policy rate of 10%, clearly a level of restriction that did not match the inflation reality. This justified the accelerated pace of rate cuts," he stressed. "The shift from 50- to 25-basis-point adjustments represents an initial signal of monetary policy calibration after several almost automatic cuts."

50BP CUT UNLIKELY

In his view, it is unlikely that 50bp reductions will return, as the rate is now close to the neutral threshold, and accelerating the pace again could limit the central bank’s room for maneuver should inflation rebound or expectations become unanchored.

"Inflationary pressures remain, and the challenges heading into 2026 are still significant," he said. (See MNI INTERVIEW: Banxico To Keep To 25BP, Caution Needed -Guzman)

Messeguer estimates the terminal rate for this cycle at 6.50%, still above the neutral level, meaning it would remain slightly restrictive. "From that point on, further moves will respond to new inflationary pressures rather than to the inertia of the easing cycle," he said.

"It’s worth remembering that the 11.25% rate that was reached, or the 10% level at the beginning of 2025, reflected an inflationary episode with very particular characteristics, mainly supply-side pressures, associated with the pandemic and the subsequent economic reopening. We are no longer in that context," he added.

U.S. TARIFFS 

He noted that Banxico sees U.S. tariffs potentially affecting Mexican inflation in two directions. "The effect most likely to dominate in the short term is the upward bias, particularly related to imports of intermediate and final goods, which could influence domestic price formation,” he said.

"Regarding the demand channel, trade with the United States has remained strong and expanding, and Mexico continues to gain market share, so over the next few months it is likely that Mexican exports will grow faster than U.S. demand itself."

The interest rate differential with the United States can affect the exchange rate, Messeguer said, noting that the peso’s recent strength largely reflects greenback weakness amid heightened uncertainty driven by shifts in trade policy, while Mexico has maintained a solid macroeconomic framework.

"This should not be seen as a permanent trend. The dollar’s weakness is likely cyclical, and eventually it could regain strength. At the end of the day, the United States remains the world’s largest and deepest market.”