By www.CentralBankNews.info Mexico’s central bank cut its benchmark interest rate by a larger-than-expected 50 basis points to 4.0 percent to boost spending and growth, but stressed it was not embarking on a new cycle of easing and the rate cut would not jeopardize the path towards lower inflation.
Banco de Mexico said its first rate cut since July 2009 was made possible by the country’s progress in anchoring inflationary expectations, reducing the persistence and volatility of inflation, the lack of second-round effects from price shocks and a significant decline in the inflation risk premium.
But Mexico’s economy is now feeling the effects of an expected decline in U.S. growth where budget cuts are affecting prospects and there is uncertainty about Europe’s economic recovery.
“The global economy continues to show signs of weakness,” the Bank of Mexico said, adding that rising unemployment will allow the economy to grow without stoking inflation.
The rate cut comes after the central bank changed course in January and signaled that rate cuts may be in the offing after last year’s frequent warnings of rate hikes to control inflation.
Mexico’s inflation rate rose to 3.55 percent in February from 3.25 percent in January but this is still well below 2012’s average rate of 4.11 percent.
The central bank targets annual inflation of 3.0 percent, plus/minus one percentage point.