As expected, Banxico cut the interest rate by 50-bps in a split decision to 9.5% (4-1, with Board member Jonathan Heath voting for 25-bp). In addition, the new forward guidance signaled another 50-bps cut in the following meeting “going forward, the board could continue to calibrate the monetary stance and consider adjusting it by a similar amount”. The one-year real ex-ante rate of 5.4% continues above Banxico’s real neutral estimate of 2.7%.
Banxico’s inflation forecast path was broadly the same with respect to the previous meeting, with a convergence to the target maintained by 3Q26. According to the statement, the balance of risks for inflation remained tilted to the upside and added that “the inflationary episode resulting from the effects of the pandemic and the start of the war in Ukraine has been resolved”.
Regarding the discussion on tariffs, the board only mentions that announcements of economic policy by the new US administration have added uncertainty to the forecasts, but a materialization of them would impact the balance of risks in both directions.
Our take: Today’s decision delivered a 50-bp cut followed by a forward guidance indicating an adjustment of similar magnitude in the next meeting (March 27th). Although the decision was broadly expected by analysts, given the recent dovish board communication (Plan Monetario 2025), weaker 4Q24 GDP data, and tariffs delayed for one-month, signaling the next move in such a clear form was not the consensus. The February statement also kept the balance of risks for inflation as tilted to the upside. Our base case remains for the central bank to continue easing in 2025, cutting again the monetary policy rate by 50-bp and then, as they approach the end of the cycle, choosing a more moderate pace of 25-bp (YE25 8.5%). The inflation scenario remains challenging, with the Peso depreciation and tight labor market posing risks. Banxico is scheduled to publish the quarterly inflation report on February 19. The following day (February 20), Banxico will release the monetary policy meeting minutes that should shed light on the decision and board dynamics with the new board composition, with Cuadra already voting in this meeting.