Key insights
- Bank of America anticipates Banxico will cut rates to 6% by the end of 2026, potentially starting with a 25bp cut in March. This is despite inflation risks from commodities and geopolitical tensions. BofA suggests this backward-looking approach could jeopardize inflation targets if commodity prices surge. While the direct impact on US equities is limited, it signals potential emerging market vulnerability to inflation shocks, which could indirectly affect global risk sentiment and US-based multinationals.
Investing.com - Bank of America expects Mexico’s central bank to cut its policy rate to 6% by the end of 2026, with a 25 basis point reduction likely in March, according to a research note published following the firm’s recent trip to the country.
The bank maintains its out-of-consensus call despite upside risks to inflation including higher oil and fertilizer prices, rising shipping costs, and potential pressures from commodity markets.
BofA believes Banxico will point to weak economic activity, the absence of second-round effects from tax and tariff changes, minimal pass-through of international gas prices to domestic prices, and muted Mexican peso depreciation to justify the March cut.
The research firm notes that increased volatility could push Banxico to postpone the cut to May while maintaining dovish forward guidance. BofA states that Banxico is likely amplifying volatility in Mexican assets by signaling cuts.
Bank of America warns that proceeding with rate cuts could jeopardize inflation convergence to target if a prolonged conflict in Iran triggers further pressure across energy, metals, and agricultural commodity markets.
The bank characterizes Banxico’s policymaking approach as turning very backward-looking.
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