MNI POLICY: Banxico Likely On Hold In H1, Little Room For Cuts

The Central Bank of Mexico wants to see whether inflationary pressures dissipate before resuming its easing cycle, and might not cut in the first half of the year, with some board members seeing room for possibly only one or two further 25-basis-point reductions if the outlook allows, MNI understands. 

Members want to look for signs of any lasting effect on inflation of increases last month to the Special Tax on Production and Services and to tariffs on countries with which Mexico does not have trade agreements, particularly affecting China. Banxico’s data-dependent approach requires time to fully evaluate the outlook, using a broad data set.

LITTLE ROOM TO CUT

Banxico is expected to pause its easing cycle on Thursday, keeping the overnight interbank rate unchanged at 7.00% after cutting borrowing costs at every meeting in 2025. In December, when it eased by 25 basis points, the board did not signal a cut at the next meeting as it had done previously and instead said it would "evaluate the timing for additional reference rate adjustments." (See MNI BANXICO WATCH: Easing Pause Expected, Focus on Duration)

Mexico's inflation was 3.69% in December, down from 3.80% in November and ending 2025 within the 1-percentage-point variance range of Banxico's 3% target. Core inflation was 4.33%, down from 4.43% the previous month.

Analysts are questioning how long the pause will last and whether Banxico will cut much more this year as the policy rate approaches the midpoint of the central bank’s range of estimates for the neutral rate.