Rabobank strategists Molly Schwartz and Christian Lawrence anticipate that Banco de México (Banxico) will implement one more 25 basis point (bp) rate cut in May 2026, moving the policy rate to 6.50% by the end of the year [1]. This adjustment comes after Banxico's Governing Board decided by majority to reduce the target overnight interbank rate by 25bp to 6.75%, continuing its easing cycle [1]. The Board judged that, despite cumulative cuts, the policy stance remains restrictive and appropriate given weak economic activity, persistent slack, and inflation pressures largely attributed to transitory non-core shocks [1].
Rabobank notes that the balance of risks for Mexican growth is skewed to the downside, while inflation is being driven by temporary non-core shocks [1]. The strategists highlight that their forecast for Banxico's rate path is now adjusted, pulling forward the final 25bp cut from June to the May 7 meeting, with a terminal rate of 6.50% for 2026 [1]. However, they caution that the risk to their forecast is tilted toward no further easing, especially as Banxico's most recent meeting occurred before the March CPI inflation print was released [1].
Looking ahead, Banxico's Governing Board stated that future decisions will depend on incoming data and evolving external conditions, particularly developments related to the Middle East conflict [1]. The Board emphasized that monetary policy will remain consistent with the trajectory needed to achieve a sustained convergence of headline inflation to the 3% target during the forecast period [1]. Rabobank also notes the Board's bias toward focusing on the deteriorating economic environment and its willingness to look through short-term inflation effects [1].
CONCLUSION
Rabobank expects Banxico to deliver a final 25bp rate cut in May, with a year-end policy rate of 6.50%. However, the risk remains tilted toward no further easing, as future decisions will be data-dependent and influenced by external developments. The market should anticipate a cautious and gradual normalization path from Banxico.