The Bank of Mexico (Banxico) is facing growing doubts about its ability to meet its inflation target of 3% by year-end, raising questions about its credibility as market projections point to higher inflationary pressures than the central bank acknowledges. According to the latest Citi survey, the consensus is that Banxico will resume interest rate cuts by its May meeting, with a 25-basis-point adjustment. These pressures are already reflected in the bond yield curve, which is steepening, responding to expectations of higher inflationary pressures and the recent external environment. Banxico's Deputy Governor Gabriel Cuadra signaled caution to the market regarding the next step in monetary policy. In an appearance on the Banorte podcast, he stated that, in his view, the central bank should adopt a 'wait-and-see' approach at its first meeting of the year, scheduled for February 5. This is considering the impact of the IEPS tax adjustment on products like sugary drinks and tobacco, but particularly on tariffs with countries that do not have trade agreements with Mexico, notably China. Cuadra emphasized that the central bank will consider the effects of these fiscal measures. However, he added that it will take time to ensure that no second-order effects are generated, especially in the case of tariffs. These pressures would add to the shocks facing the services sector, which has not declined as desired despite the economic downturn, particularly in food-related prices. The deputy governor's comments reinforce market expectations.
