Central Bank Rate Cuts in Mexico and Albania

March 25, 2020

Given the flurry of inter-meeting central bank interest rate cuts during the Covid-19 pandemic, some moves have slipped initially under the radar. The Bank of Mexico overnight interbank rate had been already cut by 150 basis points since last August. At an emergency Governing Board meeting last Friday, the policy rate was sliced by a further 50 basis points to 6.5%. This was done in spite of peso depreciation, a development shared with many other emerging market currencies. A statement of explanation paints a difficult period for growth looking forward and one of increasing two-sided uncertainty surrounding a baseline inflation projection that sees a declining trend:

The negative effects on economic activity that may result from the pandemic, in a context of a further weakening of the global economy, imply a deterioration of the economy’s growth outlook. For this reason, an even greater than anticipated widening of slack conditions is foreseen, with a balance of risks significantly biased to the downside. Although inflation is expected to continue its downward trend towards Banco de México’s target within the time frame in which monetary policy operates, this trend could be slower and is subject to important risks, both to the downside and to the upside.

The vote to cut the interest rate by 50 basis points was not unanimous, as one committee member preferred undertaking another 25-basis point move instead.

Meanwhile, today in Europe the Bank of Albania halved its policy interest rate to 0.50%. This was the first rate change since a 25-basis point cut there in June 2018.

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

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