Insights 
VT 
Banco de México (Banxico) is expected to continue its rate reductions, with a forecast shift from 8.50% to 8%, according to a Reuters poll of 21 out of 26 economists. Despite inflation in Mexico exceeding the 3% target, discussions persist on whether the central bank should cut rates further.
Of the five economists surveyed, three support a gradual easing strategy, while two suggest keeping rates steady. Deputy Governor Jonathan Heah recommended a pause on the 50 bps cuts to evaluate more data.
Anticipated Easing Pace
Fifteen of the Reuters respondents anticipate a slower easing pace, with the next review set for August. Many of these economists foresee the benchmark interest rate remaining at 7.50% by Q3 2025.
Banxico aims to maintain the value of the Mexican Peso (~MXN) and control inflation, targeting a 3% midpoint between 2% and 4%. Adjusting interest rates is their primary tool, as higher rates can attract yields but also have impacts such as cooling down the economy. The interplay with the US Federal Reserve’s decisions plays a notable role, often influencing Banxico’s policies, as observed post-Covid-19 when early rate hikes were implemented to stabilize Mexico’s currency and economy.
We are seeing a fairly calculated shift in policy direction from Banxico, with the consensus leaning toward measured reductions over the coming months. A trim from 8.50% to 8% appears to be held by a clear majority of analysts canvassed, but the path to lower rates may not mirror the pace which some markets have priced in – that’s worth watching. Inflation remains above target, and that’s not a detail to glance over. In fact, it’s pivotal to understanding current sentiment within the bank itself. The benchmark target is 3%, and we’re still floating over that level, which suggests room for caution from the policymakers.
Heath’s recommendation to hold off on sharp movements—specifically, the 50 basis point cuts—echoes a stronger desire within the board to monitor progress before shifting further. We’ve seen this approach before, especially in periods where international positioning, especially relative to the Fed, may limit their freedom. The Mexican Peso doesn’t operate in a vacuum, and stability in currency valuations often features prominently in Banxico’s decisions. It’s not uncommon that they align with or hedge against US rate paths.
Moderate Adjustments Expected
As it stands, fifteen of the economists in the survey aren’t expecting an accelerated easing trajectory. This implies a reduced pace, quite possibly only one or two trims more before year-end, provided inflation gives room. That’s quite a change from just a few months ago when there may have been more hope for deeper cuts. The next scheduled meeting in August will be part of that calculation, but between now and then, traders should be attuned to inflation prints, forward guidance, and peso-movement against the dollar. We’ve also noticed that longer-term expectations are converging toward a base rate of 7.50% by late 2025, which brings forward a medium-term view that still embodies caution, perhaps hinting at the bank’s underlying discomfort with dipping too low, too soon.
We interpret Banxico’s actions as a balance between sending a softening message to support the domestic economy while still preserving the bank’s inflation-fighting tone. Policymakers are clearly tracking the pressure points from both internal consumption metrics and external monetary cues. Interest rate adjustments remain their most direct influence over inflation expectations, wage growth, and the strength of the Peso. It’s a tight corridor.
Given that, we anticipate moves will stay modest and likely conditional. The more hawkish holdouts within the board – those calling for stability – have a case that’s gaining relevance with each data release. With domestic inflation not yet anchored within the desired 2–4% corridor, we should not expect aggressive action, even if some sectors in the economy may be hoping for it. Traders will need to consider the cost of carry carefully, especially those managing positions sensitive to short-term rates.
Much of what happens next hinges not solely on Banxico, but how pressures from external rate environments develop. For now, a cautious easing narrative—grounded in real data rather than forward speculation—remains the prevailing outlook.
