- We expect Banxico to deliver a unanimous pause at its first 2026 meeting. The key focus will be on forward guidance rather than the decision itself.
- While the Board has adopted a more cautious tone, it is still signalling that further cuts are possible, with the timing dependent on inflation dynamics linked to fiscal adjustments (IEPS).
- Despite a likely acknowledgment of a rebound in 4Q25 activity, we anticipate that growth will remain below potential for a third consecutive year, which effectively leaves room for further easing.
- Near-term inflation forecasts may be revised up and convergence to the 3% target delayed, but the inflationary uptick is driven by supply shocks and should not prevent a move toward a neutral stance.
- Risks remain skewed to the downside for growth and to the upside for inflation, but not enough to derail a gradual normalisation of policy.
- Banxico will likely reference the modest global recovery, persistent core inflation in advanced economies, geopolitical risks, UST losses, the Fed’s pause, higher local curves, and continued MXN real appreciation.
- The 2026 Monetary Policy Programme reiterates confidence in the transitory nature of tax and tariff shocks, a negative output gap and currency stability, supporting the case for further easing.
- Banxico’s research and our own models suggest that with growth around 1–2% and inflation between 3-4%, the policy rate could be reduced further toward neutral.
- With the curve only pricing in one cut in 3Q26, we see value in nominal rates - particularly in the 10Y and beyond - and expect a cautious Banxico to keep the MXN supported, likely between USDMXN17.0-17.5 in the coming months.