Mexico’s central bank cut its benchmark interest rate for the fifth time this year, saying the risks to the economy remain to the downside and there is persistent uncertainty about the economic recovery after a considerable impact from the Covid-19 pandemic.
The Bank of Mexico, known as Banxico, cut its target for the overnight interbank interest rate by another 50 basis points to 7.0 percent and has now cut it 225 points this year following cuts in February, March, April and May.
It is also Banxico’s 9th rate cut since August 2019 when it began to unwind some of rate hikes – a total of 500-basis-points – between December 2015 and December 2018. Since August last year the rate has been cut 325 points.
The bank’s board said its decision today was unanimous and future actions will be based on the impact on economic activity from the Covid-19 pandemic and the evolution of the financial shock so the policy rate is consistent with inflation around Banxico’s target.
Mexico’s economy has contracted in the last four quarters, with gross domestic product in the first quarter down 1.2 percent from the previous quarter.
In late May Banxico forecast the economy would contract as much as 8.8 percent this year.
Banxico said the reopening of parts of the economy in May and June will lead to some recovery though the impact of the pandemic have been “considerable and uncertainty persists” and growth risks remain significantly biased to the downside.
Mexico’s inflation rate rose to 2.84 percent in May and 3.17 percent in the first half of June from 2.15 percent in April and the central bank said expectations are for inflation to remain above its 3.0 percent goal.
