Private Sector Experts Anticipate Continued Rate Reductions
Private sector analysts forecast that the Bank of Mexico will maintain its cycle of rate reductions into the following year, despite anticipated upward pressures on inflation.
Consensus on a Pause in 2026
Experts from BNP Paribas, Banco Base, Pantheon Macroeconomics, and Rankia concur that a pause in the rate reduction cycle is expected during the first months of 2026. This interruption follows 13 reductions over 21 months, lowering the rate from 11.25% to the current 7%.
Divergent Views on Terminal Rate
While analysts agree on the continuation of rate reductions, they differ on the terminal rate once this cycle concludes. BNP Paribas economist Pamela Díaz projects a terminal rate of 6.50%, achieved through two additional quarter-point reductions, maintaining this level into 2027.
Banco Base’s Gabriela Siller and Pantheon Macroeconomics’ Andrés Abadía both estimate a terminal rate of 6%, but disagree on the pace. Abadía predicts this level will be reached by mid-2026, while Siller suggests it may take longer.
Rankia’s Lower Projection
Rankia’s Chief Economist for Latin America, Humberto Calzada, expects a more substantial reduction, bringing the terminal rate to 5%. This scenario depends on inflation and subjacent indicator trends reaching expected levels by late 2027.
Historical Context of Rate Reductions
Since 2024, the Bank of Mexico has reduced its reference rate by 300 basis points from 10% to the current 7%. This cycle began with five reductions totaling 125 basis points, lowering the rate from 11.25% to 10%.
Banxico’s Independent Stance
Unlike its counterpart, the Federal Reserve (Fed), Banxico initiated rate reductions in March 2024, a year before the Fed’s Committee on Open Market Operations (FOMC) started in September 2024.
Since then, Banxico’s stance has been guided by domestic inflation trends and internal conditions, rather than external factors like currency strength or interest rate differentials.
Approaching Monetary Neutrality
BNP Paribas economist notes that the recent rate reduction pushes monetary policy closer to neutrality, where economic activity isn’t restricted, and inflation isn’t actively combated.
Banxico estimates the neutral rate range to be between 1.8% and 3.6%, with a midpoint of 2.7%.
Key Questions and Answers
- What do private sector analysts predict about the Bank of Mexico’s rate reduction cycle? Analysts from BNP Paribas, Banco Base, Pantheon Macroeconomics, and Rankia anticipate that the Bank of Mexico will continue its cycle of rate reductions into the following year.
- When do experts expect a pause in the rate reduction cycle? Experts predict a temporary halt during the first months of 2026.
- What are the differing views on the terminal rate of this cycle? While most analysts agree on continued reductions, they diverge on the terminal rate. Projections range from 5% (Rankia) to 6.50% (BNP Paribas), with varying timelines.
- How has Banxico’s stance on rate reductions differed from the Federal Reserve? Banxico initiated rate reductions in March 2024, a year before the Fed, and has since been guided by domestic inflation trends rather than external factors.
- What does monetary neutrality imply for Banxico’s policy? Monetary neutrality suggests that economic activity isn’t restricted, and inflation isn’t actively combated. Banxico estimates the neutral rate to be between 1.8% and 3.6%.
