How will the Mexican weight react to the alleged reduction of Banxico interest rates?

• Banxico will announce its monetary policy decision today at 19.00 GMT.
• The Central Bank of Mexico is expected to cut interest rates at 50 basic points.
• The Mexican weight could experience volatility with the announcement.

The Central Bank of Mexico (Banxico) will announce this Thursday, May 15 at 7:00 p.m. its monetary policy decision. The market awaits a 50 basic points cut (PB), which would place interest rates in 8.5% from the current 9%.

Will the mild rise of inflation and moderation of Trump weigh on the decision of Banxico? The focus will also be in the Fed

Mexico reached a 11.25% historical maximum in its interest rates in April 2023, and kept it at that level until February 2024. In March last year, Banxico decided to start its cycle of cuts, although it stopped it until August, when it resumed the path of the flexibility of its Moentaria policy. Since the August meeting, the Central Bank has cut its types at all meetings, with 25 bp to December and 50 PB in February and March.

The market today expects a new reduction of 50 basic points (PB), which would leave interest rates in 8.5%, its lowest level since August 2022. This decision would diverge the position of the Federal Reserve of the United States, which at the May meeting maintained a restrictive position waiting for the progress of inflation and the repercussions of the tariff policy of President Donald Trump.

The Mexico inflation rose to 3.93% per year in April From 3.8% of March, while the underlying CPC also increased to 3.93% from the previous 3.64%. The general consumer price index reached its highest level in four months and slightly exceeded the consensus of 3.9% planned.

Since the data of Mexican inflation and the tariff reduction agreement between the United States and China were known, the Mexican weight has been appreciated with more forcefollowing the wake of the rise initiated in mid -April.

The Trump factor will be taken into account again by Banxico. The decisions regarding tariffs taken in recent weeks by the US president have promoted an improvement in the feeling in the market, especially after the United States and China agreed to reduce tariffs in the meeting they held in Switzerland last weekend. The Republican Executive announced that it reduced 30% Chinese products, while the Asian giant fell to 10% taxes on US goods.

Another aspect to take into account for Banxico could be the restrictive position of the US Federal Reserve, which decided to keep its rates at the May 7 meeting unchangedleaving its types in 4.5% per fourth consecutive meeting. The words of Jerome Powell, president of the Fed, betting on waiting for the data to support solidly a reduction can influence Banxico.

This Tuesday, The US published its April inflation data, showing a pricing softening. The dollar fell after the news and the USD/MXN reached new minimums of 2025 and the last seven months in 19.30 just one day later.

Both the statement of the last meeting of Banxico, in March, and the statements of the subgovernor of the Central Bank, Jonathan Heath, in recent days, support the 50 PB reduction today. According to Hath, there is still margin for additional rate reductions, qualifying them as “highly probable”, although it emphasized the need for caution given the persistent uncertainty in economic perspectives.

How would a 50 bp of Mexican weight affect? What if the cut outside 25 bp or there were no changes in the rates?

He Mexican peso could experience a strong rebound if Banxico announces that interest rates do not varycausing the USD/MXN to fall towards the psychological zone of 19.00. A rupture of this level could accelerate the fall towards the minimum of August 2024 around 18.42.

In the event that the reduction out of 25 basic points, we would also see a rise in the Mexican weight, although not as strong, pointing as the first objective of the USD/MXN the area of ​​19.11/19.06, where the minimum of October and September 2024, respectively, are respectively.

If the ad coincides with the consensus of cutting of 50 basic points, the weight should not vary much its price, since the market discounts this decision. In any case, the focus would then be in case the statement advances new cuts for the next meeting.

1 day graph of USD/MXN