Mexico’s 12-month inflation rate in March was 4.59%. This was below expectations of 4.61%.
The data points to a smaller year-on-year rise in prices than forecast. No further figures were provided in the update.
The March inflation number coming in at 4.59%, just under the 4.61% we were looking for, reinforces the disinflationary trend. This gives Banxico, Mexico’s central bank, more flexibility in its monetary policy decisions. We believe this increases the probability of another interest rate cut at their next meeting in May.
Looking back, this follows the pattern we saw throughout 2025 when the central bank cautiously initiated its easing cycle with 25 basis point cuts. Back then, inflation was also trending down from its post-pandemic peak, but the bank remained hesitant to cut aggressively. This new data point could embolden the more dovish members of the board to continue the cycle.
For derivative traders, this suggests a potential weakening of the Mexican Peso against the U.S. dollar. The “carry trade,” which benefited from high Mexican interest rates and saw the USD/MXN exchange rate dip below 17.00 for parts of 2025, is becoming less attractive as the interest rate differential narrows. We are looking at long positions in USD/MXN call options as a way to profit from a potential upward move in the exchange rate.
The market for TIIE interest rate swaps is already pricing in about 75 basis points of cuts for the remainder of 2026. This inflation print may cause traders to increase their bets on a more rapid easing cycle, potentially pushing those expectations closer to 100 basis points. This could involve positioning in TIIE futures to bet on falling short-term interest rates.
On the equity side, a more accommodative central bank is typically bullish for the local stock market. With Mexico’s GDP growth holding steady around 2.4% according to recent government estimates, lower borrowing costs could spur further investment. Buying call options on key Mexican stock market ETFs could be a capital-efficient way to gain exposure to this potential upside.
