Mexico | Close call, but we expect Banxico to stick to its guidance and ease this week

Summary

Banxico is expected to resume its easing cycle with a 25 basis point rate cut to 6.75%. Despite an uptick in headline inflation driven by supply shocks and higher oil prices, underlying domestic demand remains weak, supporting a move towards a neutral rate.

Key points

• Key points:
• The US Federal Reserve left rates unchanged at 3.50-3.75% and signaled limited scope for near-term easing amid increased geopolitical uncertainty.
• Mexico's real GDP growth for the fourth quarter of 2025 was revised upward to 0.9% quarter-over-quarter, improving the economic outlook for 2026.
• Headline inflation reached 4.6% in the first half of March, mainly driven by a 5.2% year-over-year increase in non-core inflation due to fruit and vegetable prices.
• Long-term yields on 10-year Mexican bonds increased by around 70 basis points, reaching 9.4%, which tightens financial conditions and reduces the need for additional monetary restraint.

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