Rabobank analysts, Molly Schwartz and Christian Lawrence, expect that Banxico will maintain the policy rate at 7.00% during the February 5 meeting. This expectation aligns with all Bloomberg surveyed analysts. They predict at least two more 25bp cuts in 2026, reducing the overnight policy rate to 6.50%.
The latest monetary policy statement from Banxico adjusted its language, which might indicate a future pause. The phrase changed from “the Board will evaluate reducing the reference rate” to “the Board will evaluate the timing for additional reference rate adjustments.” This potential pause would follow 12 consecutive rate cuts.
Banxico Meeting Expectation
With the Banxico meeting on February 5th, the unanimous expectation is for a rate hold at 7.00%, marking the first pause in over a year. For derivative traders, this means the immediate event risk is low, and the focus must shift entirely to the forward guidance for clues on future policy. Any subtle change in language will likely cause a bigger market reaction than the decision itself.
This expected pause is supported by recent data showing core inflation has remained sticky, ticking up to 4.5% in January from 4.3% at the end of 2025. We also saw that GDP growth in the final quarter of 2025 was a resilient 2.8%, giving the board room to wait and assess the economy. The market has largely priced this pause in, so the trade is not in the decision, but in the nuance of the statement.
In the near term, this policy stability should be supportive for the Mexican peso. We are watching for traders to favor strategies like buying short-dated put options on the USD/MXN pair, anticipating that a firm hold will strengthen the currency. The profitability of this position will depend on the central bank signaling it is in no rush to resume cutting.
TIIE Swap Curve and Market Risks
Looking further out, the TIIE swap curve is already factoring in the two additional 25 basis point cuts expected later in 2026. Traders should be examining forward rate agreements for any mispricing, as a more hawkish tone could flatten the curve, while any hint of economic weakness could steepen it. We believe the risk is skewed towards the market having been too aggressive in pricing the full 50 basis points of easing for the year.
We recall the volatility spike in the third quarter of 2025 when the market was caught off guard by the pace of Banxico’s cuts. While a hold seems certain, this level of consensus often leads to lower implied volatility, potentially making options contracts cheap. A surprise move or a significantly dovish statement could therefore present an outsized opportunity for long vega positions.
