Growth And Policy Outlook
Banxico is described as dovish in the near term. Further interest-rate cuts are expected to be delayed until 2027. Budget targets are described as achievable. However, rising social spending is expected to limit the pace of fiscal consolidation. Key risks include higher oil prices, a slowdown in the US, and ongoing USMCA uncertainty. These factors are expected to affect both the growth outlook and the inflation path. We see the Bank of Mexico pausing its easing cycle, which is a key shift from the rate cuts we saw in late 2025. With the latest bi-weekly inflation data for March ticking up to 4.9%, Banxico is unlikely to cut rates again soon, contrary to some market expectations. Derivative traders should consider positions in TIIE futures that bet on interest rates remaining at current levels through the second quarter.Trading And Hedging Ideas
The outlook for the peso is mixed, creating opportunities in options. While higher-for-longer interest rates offer support for the currency, the persistent uncertainty around the USMCA trade agreement review acts as a major headwind. This suggests traders could buy volatility on the USD/MXN pair, as any news related to the trade pact could cause a sharp move. Weak economic growth forecasts should make us cautious about Mexican equities. The latest manufacturing data from INEGI showed a second consecutive month of contraction, supporting the view of a slowdown. We could use put options on the IPC stock market index to hedge against this expected weakness in investment and manufacturing. Rising oil prices present a direct inflation risk, with WTI crude holding firmly above $85 a barrel. This trend is expected to continue feeding into consumer prices, reinforcing Banxico’s cautious stance on monetary policy. Traders might look at bullish call options on oil as a hedge against this inflationary pressure impacting other assets. Create your live VT Markets account and start trading now.
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