MexECON Blog

Central Bank Cuts Rates to 3.50 Percent

In a decision on Friday, policymakers at Banco de México cut their benchmark interest rate to 3.50%.  The cut was the third this year, following a reduction to 3.75% in September and an initial reduction to 4.00% in March.  Prior to that, the benchmark rate had stood at 4.50% since 2009.  In their statement, the policymakers said that the Mexican economy had begun to demonstrate a tentative recovery in the third quarter, after a sharp deceleration in the first quarter and an outright decline in the second.  However, they also noted that there was still significant slack in the economy, and that risks were weighted to the downside.  The policymakers also saw a benign picture with regard to inflation.  Against this background, the policymakers felt that cutting the benchmark rate would be consistent with inflation falling to their target of 3.0% over the medium term.

Comment: Data on Friday showed that Mexico's trade balance was in surplus for a second straight month in September, and that exports appear to remain on a slight upward trend, after a period in which they had flattened out.  However, other sectors remain weak, and the economy remains at risk of slipping into recession.  Banco de México's latest rate cut therefore can be seen as a bit of insurance aimed at reducing the risk of an outright decline in economic activity in the coming months.  The jury is still out on whether the economy will keep growing or post a short, modest decline.

Patrick Fearon, CFA
Vice President, Fund Management

Benchmark Rate 1310

In a decision on Friday, policymakers at Banco de México cut their benchmark interest rate to 3.50%.  The cut was the third this year, following a reduction to 3.75% in September and an initial reduction to 4.00% in March.  Prior to that, the benchmark rate had stood at 4.50% since 2009.  In their statement, the policymakers said that the Mexican economy had begun to demonstrate a tentative recovery in the third quarter, after a sharp deceleration in the first quarter and an outright decline in the second.  However, they also noted that there was still significant slack in the economy, and that risks were weighted to the downside.  The policymakers also saw a benign picture with regard to inflation.  Against this background, the policymakers felt that cutting the benchmark rate would be consistent with inflation falling to their target of 3.0% over the medium term.
Comment:  Data on Friday showed that Mexico's trade balance was in surplus for a second straight month in September, and that exports appear to remain on an upward trend.  However, other sectors remain weak, and the economy remains at risk of slipping into recession.  Banco de México's latest rate cut therefore can be seen as a bit of insurance aimed at reducing the risk of an outright decline in economic activity in the coming months.  The jury is still out on whether the economy will keep growing or post a short, modest decline.
Patrick Fearon, CFA
Vice President, Fund Management

0 comment(s) for “Central Bank Cuts Rates to 3.50 Percent”

    Leave a Comment

    Name:
    Website:
    Comment:

    Archive