Banxico cuts rates by 50 bps to 9.50% as expected

• Banxico's 50-bps rate cut reflects a cautiously optimistic inflation forecast, with a possible additional cut discussed.
• Deputy Governor Jonathan Heath favored a more conservative 25-bps cut, highlighting internal differences.
• The Central Bank notes significant MXN volatility in response to US-Mexico tariff negotiations.

The Banco de Mexico (Banxico) lowered interest rates by 50 basis points (bps) as expected by analysts, though the decision was not unanimous as Deputy Governor Jonathan Heath voted for a 25-bps rate cut.

Banxico cuts on a split decision

Banxico's monetary policy statement revealed that the central bank could continue calibrating monetary policy and consider an additional 50 bps cut in subsequent meetings. According to the board, the inflationary environment would allow the bank to continue easing policy, albeit maintaining a restrictive stance.

The Mexican Institution Governing Council added that headline inflation is projected to converge to Banxico's 3% goal in Q3 2026. According to recent statements, the board sees inflation risks remaining skewed to the upside.

Regarding tariffs, the board acknowledged that the Mexican Peso depreciated significantly and reverted once the US and Mexico agreed to pause tariffs.

Forecasts for Inflation

Source: Banxico

USD/MXN Reaction to Banxico's Decision

The USD/MXN has recovered some ground after reaching a daily low of 20.41 ahead of the decision, with the exchange range meandering within the 20.45 - 20.55 range. The first key resistance level eyed by traders would be the February 5 high of 20.71, which once cleared could pave the way to test the January 17 high of 20.90. On the downside, if sellers push the exchange rate below the 50-day SMA at 20.41, they could drive it towards the 100-day SMA at 20.22.