Will Banxico cut rates? What the market expects

The Bank of Mexico sets its interest rate eight times a year, and each decision moves loans, savings and the peso. Prediction markets turn that decision into probabilities you can follow live.

What Banxico decides

The Bank of Mexico’s Governing Board (the governor and four deputy governors) sets the target for the overnight interbank interest rate. It’s the benchmark for the cost of money in the country. Its mandate is to preserve the peso’s purchasing power, with an inflation target of 3% and a band of one point above or below.

Each year Banxico publishes the calendar of its eight monetary policy announcements, and two weeks after each one it publishes the minutes of the Board’s discussion.

How to read the market

Each decision has a market with several answers: “No change”, “25 bps cut”, “25 bps hike” and bigger moves. The price of each one is its probability, and together they add up to about 100%. If “No change” is at 75%, the market gives a 75% chance that Banxico leaves the rate where it is. Check the volume too: Banxico markets tend to have less than Fed markets, and with less volume the price is less solid.

What moves the decision

• Inflation: the INPC (Mexico’s consumer price index) that INEGI publishes every two weeks and every month, especially core inflation.
• The exchange rate: a weak peso makes imports more expensive and pushes prices up.
• The Fed: the gap between Mexican and US rates affects money flowing into the peso. See what the market expects from the Fed.
• Growth and jobs: a weak economy opens the door to cuts.
• What Banxico says: the statement on each decision, the minutes and the quarterly report.

Split votes

The Board doesn’t always decide unanimously; sometimes it votes 4 to 1. The market only counts the final decision, but a split vote often moves the probabilities for the next meeting. The minutes, published two weeks later, show the arguments behind each vote.

Why it matters to you

Banxico’s rate shows up in the yields on CETES (Mexican Treasury bills) and savings accounts, and in the cost of variable-rate loans. When it goes down, saving pays less and borrowing costs less; when it goes up, the opposite. That’s why the decision reaches you even if you never follow the markets.

Follow it in Bomba

In Bomba you see Banxico and Fed decisions in the Interest rates category, with a live chart, volume and rules, and you can take a position on the answer you believe in. To understand each number, read Price = probability.