Another Mexican Central Bank Rate Cut

August 13, 2020

Over the past six months, policymakers at the Bank of Mexico have engineered six interest rate cuts totaling 275 basis points. The last five of these moves including today’s announcement were cuts of 50 basis points, and the overnight interbank interest rate now becomes 4.50%, which is a 3-1/2 year low. This latest easing, according to a released statement from the Governing Board, was a response to Mexico’s intensifying recession last quarter and done in spite of a 0.3 percentage point rise of CPI inflation to an above-target 3.62% in July. The pandemic-driven downturn implies more future slack in the economy than assumed previously. Officials believe that with such unused productive resources, inflation will decline to the 3% target within the next 12-24 months. The vote to cut elicited one dissent that favored lowering the key policy rate by 25 basis points instead of 50 bps. Perhaps this non-unanimous decision will be a harbinger of smaller cuts in the future.

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



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