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MEXICO: SocGen Expects 50bp Cut As Banxico Front-Loads Some Of Easing Cycle

MEXICO
EM BulletMexicoBulletEmerging Market NewsNorth America
  • Despite policy uncertainties on the external front and the emerging inflation risks, SocGen thinks that a weak economy will push Banxico to frontload some of the rate cuts. They now expect a 50bp rate cut in both meetings in 1Q25, taking the policy rate to 9.0%, but see only 75bp in rate cuts over the remainder of 2025 for a year-end rate of 8.25% (vs. 8.50% previously). They expect another 100bp in rate cuts in 2026 to 7.25%.
  • There is little doubt that Banxico has room to ease further in this cycle as the ex-post real interest rate was as high as 6.3% in December, inflation is still within the target range, even if not yet at the 3.0% mid-point, and the economy weakened considerably in 4Q24, which will have a negative carryover effect in 2025 as well.
  • Therefore, unless the central bank believes that external factors might jeopardise the inflation outlook and financial stability, it probably makes sense for it to ease further and more quickly than it has done so far in this cycle.
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  • Despite policy uncertainties on the external front and the emerging inflation risks, SocGen thinks that a weak economy will push Banxico to frontload some of the rate cuts. They now expect a 50bp rate cut in both meetings in 1Q25, taking the policy rate to 9.0%, but see only 75bp in rate cuts over the remainder of 2025 for a year-end rate of 8.25% (vs. 8.50% previously). They expect another 100bp in rate cuts in 2026 to 7.25%.
  • There is little doubt that Banxico has room to ease further in this cycle as the ex-post real interest rate was as high as 6.3% in December, inflation is still within the target range, even if not yet at the 3.0% mid-point, and the economy weakened considerably in 4Q24, which will have a negative carryover effect in 2025 as well.
  • Therefore, unless the central bank believes that external factors might jeopardise the inflation outlook and financial stability, it probably makes sense for it to ease further and more quickly than it has done so far in this cycle.