Bank of Mexico’s Fourth Straight Rate Cut …and More Likely in Future

May 14, 2020

The first overnight rate cut of 25 basis points done in February has been followed by 50-basis point moves in March, April and now May. Today’s action was larger than some analysts anticipated but decided by a unanimous 5-0 vote. The key rate’s new level of 5.5% represents a 3-1/2 year low and a total decline since end-2019 of 175 basis points from 7.25%. The Bank of Mexico’s released statement notes that “slack conditions continue to widen considerably, in a context in which the balance of risks for growth is significantly biased to the downside.” CPI inflation last month dropped 0.9 percentage points to 2.15%, and short-term price expectations are also well under the 3.0% medium-term target. The statement leaves the door open to more monetary relief down the road:

The Governing Board will take the necessary actions on the basis of incoming information and considering the large impact on productive activity as well as the evolution of the financial shock that we are currently facing, so that the policy rate is consistent with the orderly and sustained convergence of headline inflation to Banco de México’s target within the time frame in which monetary policy operates.

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



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