Rabobank expects Banxico to make one further 25 basis point rate cut at the 7 May 2026 meeting, instead of June. This would take the policy rate from 6.75% to 6.50% by year end. <\/p>\n
Banxico\u2019s minutes said the Governing Board, by majority, cut the target overnight interbank rate by 25 basis points to 6.75%. It said policy was still restrictive, with weak activity, slack, and inflation pressures linked to transitory relative-price shocks. <\/p>\n
The minutes said future decisions will depend on incoming data and external conditions, including developments linked to the Middle East conflict. Banxico said it aims for headline inflation to converge to the 3% target during the forecast period. <\/p>\n
Rabobank noted Banxico\u2019s meeting took place before the March CPI inflation reading was released. It added that risks to Mexican growth are skewed to the downside and that inflation is being driven by temporary non-core shocks. <\/p>\n
Rabobank said the risk to its rate path is tilted towards no further easing.<\/p>\n
We are adjusting our forecasts to price in a 25 basis point rate cut at the upcoming Banxico meeting on May 7. This would bring the policy rate down to 6.50%, a level we expect to hold through the end of the year. The central bank’s board appears willing to look past temporary inflation spikes to support a weakening economy.<\/p>\n
The case for a rate cut is supported by recent activity data, as Mexico’s IGAE economic activity indicator showed a slight contraction last month. This aligns with the view that the balance of risks for growth is tilted to the downside. The board’s recent meeting minutes showed a majority leaning towards prioritizing this economic slowdown.<\/p>\n
However, the path is not clear, creating a valuable opportunity for traders. The latest CPI inflation print for March came in at 4.5%, well above the 3% target and complicating the board’s decision. This stickiness in prices introduces significant risk that the bank may choose to hold rates steady instead of cutting.<\/p>\n
We saw a similar situation back in late 2025, when Banxico paused its easing cycle after an unexpected rise in inflation. This history shows the board is data-dependent and will not cut rates if they fear second-round inflation effects. Future decisions will hinge on whether they see the current price pressures as transitory.<\/p>\n
Given this uncertainty, derivative traders should consider positions that account for a weaker peso if the cut occurs. Buying call options on USD\/MXN offers a way to profit from a potential slide in the currency following an easing decision. This strategy provides upside exposure while defining the maximum risk.<\/p>\n
The conflicting signals between weak growth and persistent inflation suggest a rise in currency volatility is likely. Options strategies that benefit from a large price swing in either direction, such as a long straddle, could be effective. The key is to position for a decisive market reaction after the May 7th announcement, whichever way it goes.<\/p>\n
External factors, particularly the conflict in the Middle East, add another layer of complexity. Rising oil prices, with Brent crude now trading near $95 a barrel, could feed into global inflation and force Banxico to adopt a more cautious stance. This remains a key variable to monitor in the coming weeks.<\/p>\n","protected":false},"excerpt":{"rendered":"
Rabobank sees Banxico cutting rates 25bp in May, to 6.50% by year-end, amid weak growth.<\/p>\n","protected":false},"author":87,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-50887","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t