Central Bank decreases rates in March

Latest bank decision: At its meeting on 27 March, the Central Bank decided to lower the target for the overnight interbank interest rate by 50 basis points to 9.00%. The move aligned with market expectations and brought the cumulative reduction since early 2024 to 225 basis points.

Sustained disinflation and rising economic uncertainty prompt cut: The Bank noted that the disinflation process remains on track and reiterated that it still expects inflation to reach the 3.0% central target in Q3 2026. Meanwhile, the Bank highlighted that the economy is expected to have shown weakness in Q1 2025 amidst an environment of uncertainty and noted significant downward risks due to trade tensions with the U.S.

Central Bank to cut rates further: The Central Bank reiterated that it might continue adjusting the monetary policy stance in “similar magnitudes” in the future. Our Consensus is for around 100 basis points of cuts by end-2025. Greater U.S. tariffs on Mexico pose a downside risk as weaker growth is likely to prompt deeper monetary policy easing. The next meeting is scheduled for 15 May.

Panelist insight: Itaú Unibanco’s Julia Passabom and Mariana Ramirez commented: “Today’s decision delivered a 50-bp cut, followed by forward guidance indicating a similar adjustment in the next meeting (May 15th). Although the decision was broadly expected by analysts, signaling the next move in such a clear form was not the consensus. Given the well-behaved USDMXN, CPI within Banxico’s target and weak economic data (we forecast a 0.5% QoQ GDP contraction in 1Q25, indicating a technical recession following the 0.6% decline in 4Q24), we see no obstacle to the delivery of another 50-bp cut at the May meeting.” Meanwhile, BBVA analysts said: “The unchanged forward guidance signals significant odds of another 50bp rate cut in May, continues to suggest that a string of consecutive rate cuts ahead is likely, and strongly supports our below-consensus 7.5% policy rate forecast for the end of this year”

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