Overview
Bank of America has left unchanged its forecast that Mexico's central bank will lower its policy rate to 6.00% by the end of 2026. The firm expects the bank to move in increments of 25 basis points, cutting rates every other monetary policy meeting, with the first reduction slated for March 26.
Rationale Behind the Forecast
In its latest analysis, BofA points to persistent signs of economic slack in Mexico as a primary justification for the projected easing cycle. The bank highlights below-potential economic growth and a negative output gap as factors that support a gradual approach to lowering the policy rate, even after acknowledging stronger economic performance toward the end of 2025. Those observations are consistent with BofA's earlier reporting on growth dynamics.
Policy Context
BofA notes that Mexico's fiscal stance is acting in concert with monetary policy to underpin domestic demand, a feature described in a recent report from the firm. The bank also emphasizes that a robust Mexican peso grants the central bank additional flexibility for easing policy without immediate balance-of-payments pressure.
Timing and Pace
The forecast assumes a sequence of 25 basis point reductions at alternate meetings, beginning March 26 and continuing through the remainder of 2026, culminating in a policy rate of 6.00% at year-end. This projection is unchanged from the bank's previous outlook published on January 7, 2026.
Risks and Uncertainties
While the base case envisions a steady path of rate cuts, BofA cautions that risks are skewed toward a slower easing trajectory. In particular, the bank warns that a renewed acceleration of inflation could prompt the central bank to pause its rate-cutting cycle for an extended period.
Implications
The analysis suggests that monetary policy in Mexico is likely to shift from tightening to a measured easing stance, conditional on continued evidence of slack and stable inflation. At the same time, the bank underscores that any uptick in inflation would necessitate a reassessment of the timing and tempo of cuts.
Summary repeated for clarity: BofA projects Banxico's policy rate at 6.00% by end-2026, with 25bp cuts every other meeting starting March 26, citing below-potential growth, a negative output gap, supportive fiscal policy and a strong peso; risks include a potential inflation re-acceleration that could slow easing.