The Bank of Mexico, known as Banxico, cut its key interest rate by 50 basis points to 4.5% Aug, 13. This is the lowest level for borrowing costs in four years andt comes in the wake of a recession that started in 2019 and has continued with the COVID-19 slowdown. A 10.5% decline in the economy projected for this year.
Finance Minister Arturo Herrera has said Mexico has not undergone such a fiscal calamity since the Great Depression of the 1930s. Lowering borrowing costs are seen as a way to stimulate the ailing economy.
One bank board member voted for a smaller reduction, to 4.75%, which could be an indication of a slower pace of rate cuts on the horizon, Reuters reported.
In a statement released after the meeting, Banxico cited "major challenges" for monetary policy and the economy in general.
“Looking ahead, the available room for maneuver will depend on the evolution of the factors that have an incidence on the outlook for inflation and its expectations, including the effects that the pandemic might have on both factors,” the bank said.
Recent upticks in two inflation indicators could impact the bank's short-term forecast trajectories, "but both indicators are expected to remain around Banxico’s 3% target within the 12-24 month forecast horizon, the bank said," Reuters reported.
Alerts Sign-up