Implications For Banxico Policy
This February core inflation print of 0.46%, while only slightly below the 0.47% consensus, reinforces the disinflationary trend we have seen building. This data point significantly increases the probability of a policy rate cut from the current 10.50% at the upcoming March 27th Banxico meeting. For us, this solidifies a dovish outlook for the central bank. We see value in positioning through the TIIE swap curve, particularly in the shorter tenors. Entering positions to receive the fixed rate is the direct play on expectations for lower policy rates. This trade benefits if Banxico delivers a cut or signals a strong easing bias in the coming weeks. The peso’s strength, which we saw through most of 2025 as it appreciated nearly 4% on the back of the carry trade, is now under threat. A narrowing interest rate differential with the U.S. will likely pressure the currency, which currently sits near 17.10 per dollar. We should consider buying short-dated USD/MXN call options to speculate on a move above the 17.50 level. We should remember how core inflation remained stubbornly above 5% for the second half of 2025, preventing any consideration of easing policy. This second consecutive month of cooling data is the evidence the central bank has been waiting for to begin normalizing rates. It provides them with the necessary cover to shift their focus towards supporting a slowing economy.Market Risks And Positioning
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