The Bank of Mexico has announced a cut of 25 basis points in interest rates and places the reference rate at 10.50%. With decelerated inflation and greater room for maneuver due to the recent 50-point cut in the Federal Reserve’s interest rate, analysts and experts took this drop for granted, however, doubts loomed over the magnitude of the drop. This Thursday, the central bank’s governing board revealed this mystery through a statement in which they explained that after an arduous assessment, it determined that, although the inflationary outlook still warrants a restrictive stance, the evolution it has presented implies that it is appropriate. reduce the degree of monetary tightening. Voting in favor of the decision were the governor of the Bank of Mexico, Victoria Rodríguez Ceja, and the deputy governors Galia Borja, Irene Espinosa and Omar Mejía. Only Deputy Governor Jonathan Heath voted to keep the interest rate at 10.75%.
The institution recognizes in its most recent monetary policy decision that national productive activity is going through a period of weakness, in a context of high uncertainty due to external and internal factors, employment has slowed down and in the balance of risks for economic activity remains biased downward. “Going forward, the inflationary environment is expected to allow additional adjustments to the reference rate. “The Bank will take into account the prospect that global shocks will continue to fade and the effects of weak economic activity,” the central bank says in writing.
With the presence of all its members, the Governing Board of the #BancodeMexico decided by majority to reduce the 1-day Interbank Interest Rate, to a level of 10.50% with effect from September 27, 2024. Consult the statement at: pic.twitter.com/NcD5gqiGyl
— Bank of Mexico (@Banxico) September 26, 2024
Bets on the monetary policy decision in Mexico have been leaning a week ago towards reducing the rate, due, among other factors, to the recent cut in the US central bank – now in a range of 4.75% and 5 %—, the evidence in the decline in consumption in Mexico, the economic slowdown and the fact that general inflation has resumed its downward trend, standing at 4.66% at an annual rate, in the first half of September. This Thursday, the institution has also updated its downward forecasts for price escalation in the country, outlining that at the end of 2024, inflation will be at 4.3%, at an annual rate, a reduction compared to 4.2 % planned at August meeting.
The Director of Analysis at Banco Base, Gabriela Siller, has welcomed this moderate cut by the Bank of Mexico given that the country’s inflation remains at high levels and there is upward pressure on price escalation. The specialist emphasizes that a reduction in rates implies a decrease in rates on credit, an incentive for consumption and investment, as well as a lower cost of financial debt for companies and the Government. On the other side of the coin, the attractiveness of Mexico to do carry-trade (borrowing money from one place with low rates and investing it somewhere else with high rates so that it generates some return) and raises asset prices.
The rate in Mexico – reference of the national financial system – reached a historical maximum of 11.25% in April 2023, due to an unprecedented escalation of inflation in the country. After a restrictive period where the interest rate remained at that level for almost a year, last March the Mexican central bank decided to make the first reduction in three years, to 11%, and, finally, last August it was reduced to 10%. .75%- Now, faced with an economy with signs of slowdown, less employment and less inflationary pressure, the Bank of Mexico has gone further, with a second consecutive decrease in rates.
Sign up for the EL PAÍS México newsletter for free and to whatsapp channel and receive all the key information on current events in this country.
#Bank #Mexico #cut #basis #points #places #interest #rate