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Newsquawk Primer: Banxico rate decision due Thursday 7th May at 20:00BST/15:00EDT

The upcoming Banxico rate decision is significant as markets expect a 25bps cut to 6.50%.

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Newsquawk Primer: Banxico rate decision due Thursday 7th May at 20:00BST/15:00EDT

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  • Banxico is expected to cut the overnight policy rate 25bps to 6.50%, with Rabo seeing it likely to be the last cut, implying a terminal rate of 6.50%.
  • Rabo adds, the most recent Minutes highlighted that the balance of pressures facing economic activity is still skewed to the downside, and many board members focused on persistent weakness, despite a modest rebound in Q4 of last year.
  • Mexican April inflation data was more-or-less in line with expected, although prior to the reading, Rabo wrote that if the April inflation print is hotter than expected and the Bank chooses to hold, they then push out their rate cut forecast out to June, and maintain that we will see a terminal rate of 6.50%.
  • Last time out, Banxico unexpectedly cut rates 25bps to 6.75%, in a 3-2 vote split, noting ahead that depending on the evolution of macroeconomic and financial conditions, the Board will evaluate the appropriateness and timing for an additional reference rate cut. As such, desks note that Banxico will ease gradually, as weaker growth builds slack, but inflation keeps policy restrictive.
  • In recent commentary, Governor Rodriguez said the Bank is close to finishing its rate cutting cycle that began in 2024, and Governor Heath highlighted that while he is likely in favour of a hold at the next meeting, he expects the Board to vote in favour of another cut.
  • Elsewhere, USTR said that the US and Mexico are to launch USMCA talks on the week of May 25th and they are to be held in Mexico City, whereby Pantheon Macroeconomics note that concerns about weakening institutions and tensions in Mexicoʼs relationship with the US continue to weigh on corporate decision-making. Pantheon concludes, while relatively contained inflation and MXN strength have allowed Banxico to begin easing, transmission to activity remains slow.
Context

This aligns with commentary suggesting that economic pressures remain weak, but any unexpected inflation data could delay further cuts. Overall, this reflects the balancing act facing the Bank as it navigates between supporting growth and managing inflationary pressures.

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