📝Banxico's Easing Cycle to End At 6.5%: BBVA

The outcome of this meeting reinforced our long-held view that the easing cycle will end at 6.50%, with the timing of the final cut dependent on the duration of the conflict. The combination of weak domestic demand, still-contained underlying inflation pressures, tighter financial conditions, and a still strong peso, supports completing the cycle.

Moreover, inflationary pressures in Mexico should be more contained than in most countries, as higher gasoline prices are unlikely to be passed through to consumers by the government.

Looking ahead, we think the timing of the final rate cut will depend critically on external conditions, particularly the trajectory of oil prices and the exchange rate amid the evolving Middle East war. Under our baseline of a relatively short-lived conflict, and with Banxico’s test for second-round effects from this year’s fiscal changes now explicitly met, most Board members may prefer to wrap up the easing cycle and deliver the final 25bp cut in May. However, the risks are clearly tilted toward a delay should the conflict persist and lead to a more pronounced increase in energy prices and/or further peso depreciation.- BBVA