Mexico: Central Bank holds rates in February
Latest bank decision: At its meeting on 5 February, the Central Bank decided to hold the target for the overnight interbank interest rate at 7.00%, following 425 basis points of rate cuts from early 2024 to December 2025.
Inflation upgrade drives decision: The decision to pause further monetary easing was driven in part by upward revisions to the Bank’s headline and core inflation forecasts, with inflation now only expected to converge to the center of the 2.0–4.0% target range in 2027. Moreover, stronger-than-expected GDP growth in Q4 likely weakened the case for further monetary stimulus to support domestic demand.
Central Bank to ease further: Most panelists see more interest rate cuts by the end of this year, though future monetary easing will be more modest than in 2024 and 2025. U.S. trade policy towards Mexico is a key risk factor; additional U.S. trade restrictions could warrant additional monetary support.
Panelist insight: On the outlook, Itaú Unibanco analysts said:
“Although the upward revision of inflation forecasts reflects heightened concern at Banxico regarding the disinflation process, the tone of the statement—highlighting that the pause is warranted “this time” and maintaining the plural “adjustments”—suggests that the Board still intends to resume easing once it assesses that price shocks stemming from higher tariffs and taxes has clearly dissipated. We continue to expect a terminal rate of 6.75% for this cycle, with a final cut in May.”
BBVA analysts said:
“Domestic demand will continue to face headwinds—including ongoing, albeit softer, fiscal consolidation, as well as the uncertainty around upcoming USMCA revisions. The continued strength of the MXN also provides an additional buffer against inflationary pressures. Thus, we believe the central bank will still have scope to resume gradual rate cuts later this year (in June and September, 25 bps each), ultimately bringing the policy rate closer to the midpoint of its estimated neutral range, around 6.50%.”