Banxico seen cutting rates to 8% despite sticky inflation – Reuters poll
- 21 of 26 economists forecast Banxico will cut rates from 8.50% to 8.00% next week.
- Deputy Governor Heath signals caution, favoring a pause to assess data.
- Majority see easing pace slowing, with rates likely at 7.50% by Q3 2025.
Banco de México (Banxico) is projected to continue its easing cycle next week, despite the latest inflation reports in Mexico suggesting that risks are tilted to the upside. Inflation in May came above the bank’s 3% target, increasing concerns that the central bank would continue to reduce rates.
Most economists expect a fourth straight 50 bps cut, though calls grow for a slower pace ahead
On Friday, a Reuters poll revealed that 21 of 26 economists project the central bank would ease rates from 8.50% to 8%. This would be the fourth consecutive 50-basis-point (bps) rate cut.
Out of five economists, three expect a gradual approach by Banxico, while the remaining two expect the Mexican institution to hold rates unchanged.
Last week, Deputy Governor Jonathan Heah told Reuters that he believes 50 bps of easing should be paused until further data can be evaluated.
According to the economists surveyed by Reuters, 15 participants indicated that Banxico could slow the pace of easing at subsequent meetings, with August scheduled next. The majority of the economists polled expect Mexico’s main reference interest rate to remain at 7.50% in Q3 2025.
Banxico FAQs
The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican Peso (MXN), and to set the monetary policy. To this end, its main objective is to maintain low and stable inflation within target levels – at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%.
The main tool of the Banxico to guide monetary policy is by setting interest rates. When inflation is above target, the bank will attempt to tame it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN. The rate differential with the USD, or how the Banxico is expected to set interest rates compared with the US Federal Reserve (Fed), is a key factor.
Banxico meets eight times a year, and its monetary policy is greatly influenced by decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee usually gathers a week after the Fed. In doing so, Banxico reacts and sometimes anticipates monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did it first in an attempt to diminish the chances of a substantial depreciation of the Mexican Peso (MXN) and to prevent capital outflows that could destabilize the country.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
