Bank of Mexico Cut Interest Rate Again

October 25, 2013

The central bank rate was cut by 25 basis points to 3.5%.  This action was expected and follows two earlier reductions this year of 50 basis points in March and 25 bps at the prior meeting in early September.  The cut in March was the first change since seven reductions totaling 375 basis points dosed out in January-July 2009.  In defending the easier stance, a statement from officials observed,

It is considered that the balance of risks to inflation on the monetary policy horizon has improved.  The Governing Board has decided to decrease the target for the interbank interest rate overnight by 25 points base to 3.50 percent. Taking into account the fiscal policy provided, the Board estimated that the monetary stance is consistent with the efficient convergence of inflation to the target of 3 percent, but considers that it will not recommend additional reductions to the target for the reference rate for the foreseeable future. In any case, the Board will remain attentive that changes in relative prices resulting from the tax changes do not cause second order effects on inflation.

Mexico has very weak growth, and inflation exceeds the 3.0% target by a smaller margin than earlier this year.  After contracting in 2Q, GDP growth in 3Q probably expanded by only slightly.  Consumer prices rose 3.27% in the year to early October.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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