Seventh Bank of Mexico Interest Rate Cut of 2020

September 24, 2020

The five-member Bank of Mexico Governing Board decided unanimously to cut its key interest rate to 4.25% from 4.5%. This was the seventh reduction reduction so far this year but only half the the incremental change in the the previous five adjustments but matches the size of the initial cut in February. Although Mexican GDP tumbled 52.7% at an annualized rate between the first and second quarters, inflation accelerated about a half percentage point between July and the first half of September and, at 4.1%, is now a whole percentage point above the medium term objective. While officials anticipate inflation receding toward the goal, the caution exercised in the smaller-sized rate cut reflects possible upside risks like more peso depreciation, stubborn core inflation, and special price increased caused by the need for social distancing. When the current cycle of interest rate reductions began in August 2019, the rate level was at 8.25% and had not been lowered previously since June 2014.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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