BofA predicts Banxico to cut rates to 50 bps this week

EditorSenad Karaahmetovic
Published 04/02/2025, 10:16 pm

Investing.com-- Bank of America (NYSE:BAC) (BofA) analysts forecast that the Bank of Mexico, known as Banxico, will lower its policy rate by 50 basis points to 9.50% during its meeting on February 6.

The decision is anticipated to be a split one, with a possibility that at least one board member may opt for a more conservative 25 basis point reduction.

The appointment of Gabriel Cuadra as a new board member, pending Senate approval, is seen as a positive move for Banxico. Cuadra, who is replacing Irene Espinosa, is currently the director of economic studies at the central bank. Analysts believe that although Cuadra may lean towards the hawkish side, he is not expected to be as hawkish as his predecessor.

BofA expects Banxico to issue dovish forward guidance, emphasizing the country's weak economic performance and a decline in headline inflation. However, recent volatility in the Mexican peso, spurred by threats of U.S. tariffs, presents a risk that could lead Banxico to consider a smaller 25 basis point cut or to maintain the current rate.

Despite these potential risks, BofA maintains its prediction that the terminal rate will settle at 8.75%. This outlook is supported by the ongoing drop in headline inflation, which has fallen below 4%, within Banxico's target range.

The analysts note that fiscal consolidation efforts in Mexico, a sluggish economy, and consensus expectations remaining below 4% create an environment conducive to a more aggressive rate cut.

However, they also caution that Banxico's ability to reduce rates may be limited, given that the U.S. Federal Reserve is expected to hold rates steady and core inflation in Mexico is on the rise.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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