Thursday, June 20, 2024

With slow growth, low inflation, central bank cuts interest rate to 7.25%

The Bank of México lowered its benchmark interest rate 25 basis points to 7.25% on Thursday, citing slow economic growth and low inflation.

It was the fourth consecutive time that the central bank cut its benchmark rate by a quarter-point this year.

Predicted by all but one of 23 economists surveyed by Bloomberg, the move brings rates down to a level not seen since February 2018.

The Bank of México has not cut rates at four consecutive board meetings since 2009, when rates were lowered on seven consecutive occasions. One member of the bank board voted on Thursday to reduce the rate by 0.5%.

The central bank said in a statement that there has been some recent positive activity in the economy, noting that the peso has strengthened, partially as a result of the signing of a revised version of the new North American free trade agreement.

But it said that there is still uncertainty about debt ratings both for Mexico and the state oil company Pemex.

The bank highlighted the importance of complying with both “the 2019 fiscal goals and the objectives of the 2020 economic package,” adding that it is also “essential to strengthen the rule of law, bring down corruption and combat insecurity.”

It said that weakness in the economy seen over the past several quarters is estimated to persist, noting that “in an environment of marked uncertainty, the balance of risks for growth continues slanting downwards.”

The latest rate cut comes after the central bank downgraded its growth forecasts to between -0.2% and 0.2% this year and 0.8% to 1.8% in 2020.

Inflation has slowed to the target of 3% but the central bank said that the 20% increase to the minimum wage announced this week could drive up prices in 2020.

Bloomberg noted that even with yesterday’s cut, Mexico still has the highest real interest rate (borrowing costs minus inflation) among G20 countries.

Source: El Financiero (sp), The Associated Press (en), Bloomberg (en) 

Have something to say? Paid Subscribers get all access to make & read comments.
Department of Justice building

DOJ charges 24 in Sinaloa Cartel money laundering conspiracy

The U.S. said 24 people are part of a drug trafficking and money laundering conspiracy linking the Sinaloa Cartel to illicit banking in China.
A faucet with water coming out

Mexico City’s water supply from Cutzamala system to be shut off for repair

To repair a "sudden" leak in one of the system's control valves, authorities will cut off water on Wednesday night for six hours.
Tropical Storm One projection Cyclone Albert

Potential tropical cyclone approaches northeastern coast of Mexico

The potential tropical cyclone could become the first named storm of the hurricane season by Wednesday.