Banxico Policy Path
With Mexico’s 12-month inflation for February coming in hot at 4.02%, we need to reconsider the path for Banxico. This surprise reading, above the 3.94% expectation, makes it much harder for the central bank to justify an interest rate cut in its next meeting. The market will now price in a more hawkish stance for the foreseeable future. For our currency desk, this reinforces the “super peso” narrative. The higher interest rate differential makes the carry trade more attractive, likely pushing the USD/MXN exchange rate lower. We should consider buying peso call options or selling out-of-the-money USD calls, as the peso has already shown strength by breaking below 17.00 to the dollar last week. On the rates side, the TIIE swap curve is expected to reprice higher. We saw a similar dynamic back in late 2025 when a single strong data point delayed the start of that easing cycle. Traders should be looking to pay fixed on short-term swaps, anticipating that the overnight rate will now remain elevated above 11.00% for longer than previously thought. This sticky inflation print is a significant shift from the cooling trend we observed for much of 2025. Back then, the core inflation rate was consistently falling, giving Banxico the green light for cautious cuts. This new data suggests underlying price pressures are more persistent, complicating the monetary policy outlook for the rest of the year.Equity Market Implications
This environment presents a headwind for the Mexican stock market, particularly for rate-sensitive sectors. Higher for longer interest rates can stifle corporate investment and consumer spending, which may put pressure on the IPC index. We could look at buying put options on the index as a hedge against a potential downturn in the coming weeks. Create your live VT Markets account and start trading now.
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