Rabobank analysts, Molly Schwartz and Christian Lawrence, believe that Banxico will keep the policy rate at 7.00% during the February 5 meeting. This view matches what all Bloomberg surveyed analysts expect. They also think there will be at least two more cuts of 25 basis points each in 2026, bringing the overnight policy rate down to 6.50%.
The latest monetary policy statement from Banxico changed its wording, which may hint at a future pause. The wording shifted from “the Board will evaluate reducing the reference rate” to “the Board will evaluate the timing for additional reference rate adjustments.” If this pause happens, it will follow 12 consecutive rate cuts.
Banxico Meeting Expectation
As the Banxico meeting approaches on February 5th, everyone expects a rate hold at 7.00%, marking the first pause in over a year. For derivative traders, this means the risk of immediate changes is low, so they will focus on future guidance for policy clues. Any slight change in the language will likely result in a bigger market reaction than the decision itself.
This expected pause is backed by recent data showing that core inflation remains strong, rising to 4.5% in January from 4.3% at the end of 2025. Additionally, GDP growth in the last quarter of 2025 was a strong 2.8%, providing the board with room to pause and evaluate the economy. The market has largely anticipated this pause, so the trade hinges less on the decision itself and more on the nuances of the statement.
In the short term, this stability in policy should support the Mexican peso. We expect traders to consider strategies, such as buying short-dated put options on the USD/MXN pair, believing that a firm hold will strengthen the currency. The success of this position will rely on the central bank signaling that it isn’t in a hurry to resume cuts.
TIIE Swap Curve and Market Risks
Looking ahead, the TIIE swap curve already includes the two expected 25 basis points cuts in 2026. Traders should look for mispricing in forward rate agreements because a more hawkish stance could flatten the curve, while any signs of economic weakness could steepen it. We think there is a risk that the market might have been too aggressive in assuming a total of 50 basis points of easing this year.
We remember the volatility spike in the third quarter of 2025 when the market was surprised by the speed of Banxico’s cuts. While a hold seems likely, such consensus can lead to lower implied volatility, potentially making options contracts cheaper. A surprise move or a very dovish statement could therefore provide a significant opportunity for long vega positions.
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