A Reuters poll shows Banxico likely to slash its key rate to 8.5% amid easing inflation and sluggish Q1 growth, with a third straight 50bps cut expected in June.
Economists overwhelmingly expect the Bank of Mexico (Banxico) to deliver a 50-basis-point cut to its benchmark interest rate at its May 15 meeting, according to a Reuters poll published May 12. The move would bring the rate down to 8.5%, marking the third consecutive half-point reduction after identical cuts in February and March.
The poll surveyed 21 economists between May 9 and May 12, with 19 forecasting another 50bps cut and two anticipating a more modest 25bps move. Underlying this consensus is the fact that annual headline inflation eased to 3.93% in April—squarely within Banxico’s 3% ± 1% target range—down from 4.12% a month earlier and well below last year’s peaks above 8%.
Mexico’s disinflation journey has been bolstered by stable global commodity prices, a stronger peso and sluggish domestic demand. Core inflation, which strips out volatile food and energy prices, rose 0.49% month-on-month in April and stands at 4.1% year-on-year, just above the central bank’s comfort zone. This has given Banxico room to pivot toward promoting economic activity, particularly after Q1 GDP growth of only 0.2% followed a 0.3% contraction in Q4 2024.
Banxico Deputy Governor Jonathan Heath recently underscored the bank’s willingness to lower borrowing costs further if warranted by economic data. In a May 7 podcast with Banorte, Heath highlighted weakening industrial production and business confidence surveys, suggesting that easing policy could support a fragile recovery without reigniting inflation pressures.
Financial-market reaction has been muted ahead of the decision, with short-term peso interest-rate swaps pricing in a nearly 100% chance of a 50bps cut and roughly 60% odds of an additional 25bps cut in June. Long-term yields have drifted lower, reflecting investor hopes that a sustained easing cycle could eventually bring rates to the mid-7% range by year-end.
Domestically, the cut could spur credit growth after banks tightened lending standards in late 2024 amid concerns over consumer debt levels and global market volatility. Mortgage and auto loans, in particular, could see increased demand as borrowing costs fall, supporting consumer spending which accounts for over 60% of Mexico’s GDP. However, analysts caution that structural headwinds—such as muted job creation and sluggish business investment—may limit the transmission of rate cuts into broad-based growth.
Critics of further easing argue that emerging risks—ranging from renewed U.S. tariff threats to domestic fiscal deficits—could pressure the peso and import prices, complicating Banxico’s inflation outlook. They note that the Federal Reserve’s own policy path remains uncertain, and any sign of U.S. rate hikes later this year could spill over into Mexican markets.
Government officials have publicly supported the central bank’s independence but stressed the need for coordination on growth-boosting measures, such as infrastructure spending and regulatory reforms. Finance Minister Rogelio Ramírez de la O signaled on May 10 that the administration would accelerate public-investment projects in highways and power grids, aiming to complement Banxico’s monetary easing with fiscal stimulus.
Regional peers—in Latin America and beyond—have embarked on contrasting paths: Chile’s central bank paused its rate-cutting cycle in April amid a pickup in inflation, while Brazil’s central bank signaled further easing is unlikely until at least Q3. Banxico’s decision on May 15 will thus be watched closely by global investors seeking clues on emerging-market monetary divergence.
Looking ahead, economists in the Reuters poll project year-end interest rates of 7.75%, the lowest level since mid-2022. This would represent a cumulative 250bps cut since Banxico’s tightening peak of 11% in July 2024. Whether Banxico continues with half-point cuts or switches to smaller increments will depend on incoming data on inflation, growth and external risks.
On the dovish side, some analysts argue that Banxico may even contemplate a non-standard forward guidance framework to anchor market expectations, given the long-term benefits of a rules-based policy approach. They point to the Federal Reserve’s use of guidance and balance-sheet tools as a model for managing the transition to a looser policy environment without destabilizing markets.
Ultimately, Banxico faces the challenge of balancing its dual mandate—maintaining price stability while supporting a recovery still below pre-pandemic trends. The May 15 decision will testify to how much weight the bank places on its growth objective at a time when core inflation is decelerating and global headwinds show signs of waning.