Commerzbank analysts Michael Pfister and Norman Liebke report that the Bank of Mexico (Banxico) is expected to leave rates unchanged, with markets no longer pricing cuts in the near term after the Iran conflict. They still see scope for two or three 25 bp cuts over 2026, but stresses there is currently no concrete trigger, so today’s decision should have limited impact on the Mexican Peso (MXN).

Banxico seen on extended hold

"... the Mexican central bank (Banxico) is meeting today. Neither the markets nor analysts surveyed by Bloomberg expect an interest rate cut. Although market expectations were around 12 basis points higher before the outbreak of conflict in Iran, it would be inaccurate to suggest that there were genuine expectations of a rate cut."

"We have repeatedly stated that Banxico is likely to cut its key interest rate two or three times by 25 basis points each over the course of the year. However, there is at this point in time no concrete reason for this. On the one hand, the Mexican central bank - like other central banks - is likely to wait and see what impact the conflict in Iran has on inflation and the global economy."

"On the other hand, the monetary authorities are adopting a wait-and-see approach to better assess the consequences of the minimum wage increase and other political measures introduced at the start of the year."

"Although recent economic indicators, such as monthly economic activity and industrial production, have been significantly weaker recently, this is unlikely to be sufficient to justify an interest rate cut given the current uncertainties. Therefore, the actual decision is unlikely to play a significant role for the peso given market expectations."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)